ARM index
The published benchmark (today usually SOFR) an adjustable-rate mortgage is tied to; when the index moves, your rate moves with it after the fixed period.
What does ARM index mean?
After an ARM's fixed period ends, its rate is set as the index plus a fixed margin. The index is a public benchmark reflecting broad market rates — most current ARMs use SOFR, which replaced the older LIBOR. You do not control the index; it rises and falls with the market, carrying your rate and payment with it, bounded only by the loan's caps.
Which indexes ARMs use today
Most new adjustable-rate mortgages are tied to the Secured Overnight Financing Rate (SOFR), usually its 30-day average, published by the Federal Reserve Bank of New York. SOFR replaced LIBOR, which stopped being published in June 2023; older LIBOR-based ARMs were moved to SOFR-based replacements. Some loans still use the one-year Constant Maturity Treasury (CMT) yield.
Your loan documents name the exact index and the “lookback” — how many days before the change date the index value is read. That is the number your new rate is built from.
Index + margin = your new rate
At each adjustment the lender adds your fixed margin to the current index value, then applies your caps. Hypothetically, with a 4.30% index and a 2.75% margin:
| Component | Value |
|---|---|
| Index (e.g., 30-day average SOFR) | 4.30% |
| + Margin (fixed for the life of the loan) | 2.75% |
| = Fully indexed rate | 7.05% |
| Then limited by the periodic and lifetime caps | — |
Frequently asked
What index do ARMs use?
Most current ARMs are tied to SOFR (the Secured Overnight Financing Rate), which replaced the older LIBOR. After the fixed period your rate is that index plus a fixed margin, moving up or down as the index does, within the loan’s caps.
What is the difference between an ARM's index and margin?
The index is a public market rate, such as SOFR, that moves up and down with the economy. The margin is a fixed number of percentage points your lender adds to it.
At each adjustment, index plus margin — limited by your caps — becomes your new rate. The index changes; the margin never does.
Is SOFR the same as LIBOR?
No. SOFR, the Secured Overnight Financing Rate, is based on actual overnight loans backed by Treasury securities, while LIBOR was based on bank estimates. LIBOR stopped being published in June 2023, and SOFR became the standard index for new adjustable-rate mortgages.
Put it to use
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