Margin
What Is a Margin?
In lending, a margin is the fixed percentage a lender adds to a benchmark interest rate to determine your total interest rate on a variable loan.
It is most commonly used with:
- Adjustable-rate mortgages (ARMs)
- Home equity lines of credit (HELOCs)
- Variable-rate credit cards
Your rate is typically calculated as:
Index (such as Prime Rate) + Margin = Your Interest Rate
The margin does not change over the life of the loan. The index may.
Why Margin Matters
The margin directly affects how much you pay when benchmark rates rise or fall.
For example:
- Prime Rate: 8%
- Margin: 3%
- Your Rate: 11%
If Prime rises to 9%, your rate becomes 12%.
A lower margin reduces total borrowing costs over time.
Margins are determined during underwriting and reflect your creditworthiness, income stability, and loan type.
Margin vs. Index
Index → Variable benchmark rate
Margin → Fixed percentage added by lender
Together, they determine your variable rate.
FAQs About Margin
Can my margin change?
No. It’s fixed at loan origination.
Does a better credit score lower margin?
Often yes.
Is margin used in fixed-rate loans?
No.
Related Terms
