Margin

In finance, the margin refers to the percentage added to a base interest rate to calculate the total interest rate on a loan, especially adjustable-rate mortgages. The margin stays fixed over the loan term and, combined with an index rate, determines the interest a borrower pays. For example, if the index rate is 2% and the margin is 3%, the interest rate on the loan would be 5%. Lenders set margins based on factors like credit risk and market conditions, which affect the overall cost of borrowing.