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Indexes only apply to adjustable rate mortgages (ARM). In order to determine your new interest rate on an ARM after the initial fixed rate period, the new rate is determined by adding your "base margin" (your ground zero of the loan normally 2.75%) to the current index your loan is attached to. There are several indexes out there - the most popular being the LIBOR index or US Treasury index. Your margin percentage is added to the index and rounded to the nearest 1/8 of one per cent which determines your new loan interest rate. So indexes are the moving percentages that are tied to Wall Street and the world markets that influence interest rates.

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