A margin is the percentage points the lender adds to the index value in order to determine the adjustable rate mortgage (ARM) interest rate for each period the loan is adjusted. This is the portion of the loan that is retained by the lender as profit.
An adjustable rate mortgage can be risky for the borrower. Risky because while gains are amplified, so are losses. Margin also subjects the borrower to higher interest payments than on a fixed interest loan.
If, for instance, the adjustment-index rate is 9% and the interest rate on your mortgage is 11%, the margin is 2%. Generally, this is 2 to 3 percentage points. This is a constant amount that is added to the value of the index in order to adjust the interest rate on an ARM.
Think of the margin in this way. The margin on an adjustable rate mortgage, while a risk to the borrower, is like a safety net for the lender. It affords a ‘margin’ of security for the bank or financial institution that holds the loan.
The margin, sometimes called a net interest margin (NIM) is the percentage difference between a bank or financial institution’s yield on loans and the interest it pays to its depositors.
The margin in finance is the difference between the market value of the loan’s collateral and the face value of the actual loan. The margin is used as a provision against loss in order to cover the credit risk for the lender.
Gross profit margin is, in commercial transactions, the difference between the price a retailer pays and the price he sells the goods for. It can also be the difference between the cost of the goods to produce and the price received by the manufacturer.