A nationally published financial measure of economic conditions usually relative to other financial instruments such as bonds or Treasury Bills. The lender uses a particular index (such as the 6 month Treasury Bill) to calculate your particular monthly payment by adding a fixed margin to the index. The margin is the lenders profit and is over and above the normal index because of the assumption of loan risk. Your lender will adjust the interest on your ARM at regular time intervals also called adjustment intervals (like 6 months), by adding their particular margin to the particular index of the loan. The amount the loan is adjusted is also controlled by a periodic cap (the maximum amount the loan can change during your particular adjustment interval), the monthly cap (the maximum amount the monthly payment can change from one adjustment interval to the next), and the lifetime cap (the total amount the loan can change from the initial rate of the loan).
