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 a second mortgage?4 Views
Finance allah shmoop What is a second mortgage Okay you
know what a first mortgages it's otherwise cleverly named what
is called it is called oh yeah Mortgage it's Just
a loan on a house You paid four hundred grand
for this baby Hundred grand down two hundred fifty grand
in a first mortgage And they're still fifty grand You
owe well where's that fifty large coming from the bank
wouldn't loan you any more on a first mortgage that
was costing you six percent a year Tio you know
to rent that money So you had to get a
second mortgage which should things go awry and you become
a statistic Well that's it's fully behind the first mortgage
in the priority stack of payback So in a bankruptcy
situation the first mortgage first what's called a first mortgage
get it fully paid along with any fees associated with
it and back interest accrued and any other things that
are associated with that first mortgage it stands in line
first in priority Then any cash leftover gets attributed to
that second mortgage So not surprisingly second mortgage money costs
a lot more to rent then first mortgage money because
the risk of non payment in a bad situation is
meaningful E higher especially when the borrowed does this for 00:01:25.136 --> [endTime] a living
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