Mortgage Index

  

Categories: Mortgage

See: Mortgage.

Fixed-rate mortgages have a single rate for the life of the loan. A fixed-rate mortgage with a 5.5% rate has you paying 5.5% each and every year for the entire 30-year span. An adjustable-rate mortgage works differently. Instead of having the same rate year after year, the rate changes based on underlying conditions. It fluctuates as overall rates change.

A mortgage index provides the basis for these fluctuations. It exists as a compilation of current rates, creating a benchmark for changes in adjustable-rate loans.

The terms of an adjustable-rate mortgage will detail which mortgage index will be used in defining the rate changes. Common choices include the prime lending rate, LIBOR, or the rate paid by U.S. Treasury notes.

Related or Semi-related Video

Finance: What is Interest Only Mortgage?17 Views

00:00

Finance allah shmoop what is an interest only mortgage Well

00:07

simply put it's when you only pay the rent on

00:10

the dough you borrowed you don't pay down the principal

00:14

you owe like if you have a three hundred thousand

00:16

dollars mortgage at six percent interest you're paying eighteen grand

00:19

a year to rent that money in six percent times

00:22

three hundred rands eighteen grand a year But the principal

00:25

you borrowed is likely due in thirty years So in

00:28

theory anyway if it were a normal mortgage you'd want

00:32

to pay down the principal little bit a month as

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you go along like averaging ten grand a year in

00:37

principle pay down over thirty years That's times ten grand

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right three hundred grand their total owning your home at

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the end yeah yeah priceless that's what holmes work So

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why would you want an interest only mortgage Well for

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one thing the monthly payments or less so maybe you

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could afford morehouse If on a thirty year three hundred

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thousand dollar loan at six percent you're paying interest only

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while you're writing a check each month for eighteen thousand

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divided by twelve or fifteen hundred bucks maybe that's all

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You can afford well the extra five hundred bucks arm

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or you'd right toe pay down your principles Just not

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something you can really do right now Maybe after three

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years of scrimping and saving well you'll be able to

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start paying down that principal reducing risk and making life

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easier all the way around But right now you can't

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afford it so the only thing you can do is

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do the interest only dance Well the other reason you

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might want an interest only mortgages that interest costs are

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tax deductible Principal pay down costs are not so if

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in a given mortgage payment of say eighteen hundred bucks

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a month where three hundred of it is principal pay

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down and fifteen hundred of it is interest well on

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ly the fifteen hundred is tax deductible That three hundred

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of pay down is not And if you're a forty

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percent taxpayer the government is essentially picking up the tax

01:58

savings on the fifteen hundred times a forty percent at

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six hundred dollars in interest You're paying such that they

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quote feel unquote like the fifteen hundred is really only

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about nine hundred a month in cost to you the

02:13

three hundred bucks and principal paydown feels like a full

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three hundred dollars So some people seeking tio optimize their

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tax deductions live in the world of interest only mortgages

02:23

and let the government for a change You know work 00:02:26.24 --> [endTime] for them How's that feel same all Take it

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