Which rate is calculated as the index rate prevailing at origination plus the margin?

Which rate is calculated as the index rate prevailing at origination plus the margin?

• A. Note Rate
• B. Fully Indexed Rate
• C. APR
• D. Teaser Rate

Answer: (B)

In adjustable-rate loans, the rate is built from two pieces: the index, which can move with market conditions, and a fixed margin added by the lender. The rate you get when you combine those two parts at a given moment—the index rate in effect at origination plus the margin—is called the fully indexed rate. At origination, this fully indexed rate typically sets the initial note rate (unless there are introductory discounts or other features that alter it). As the index changes over time, the fully indexed rate changes accordingly, which is why ARM payments can adjust. The other terms don’t fit this description. The note rate is the rate stated on the loan document and may reflect the initial rate, but it isn’t defined as index plus margin in every case. The APR includes fees and points and isn’t simply index plus margin. A teaser rate is a temporary, often lower-than-market rate used for a short period.

In adjustable-rate loans, the rate is built from two pieces: the index, which can move with market conditions, and a fixed margin added by the lender. The rate you get when you combine those two parts at a given moment—the index rate in effect at origination plus the margin—is called the fully indexed rate. At origination, this fully indexed rate typically sets the initial note rate (unless there are introductory discounts or other features that alter it). As the index changes over time, the fully indexed rate changes accordingly, which is why ARM payments can adjust.

The other terms don’t fit this description. The note rate is the rate stated on the loan document and may reflect the initial rate, but it isn’t defined as index plus margin in every case. The APR includes fees and points and isn’t simply index plus margin. A teaser rate is a temporary, often lower-than-market rate used for a short period.