Final answer:
The margin in an adjustable rate mortgage (ARM) remains constant over the life of the loan, even as the index it is added to can change.
Step-by-step explanation:
The margin in an adjustable rate mortgage (ARM) is the fixed component added to the index value to determine the borrower's new interest rate. The correct answer to the question about the margin in an ARM is that it remains constant over the life of the loan. While the index part of the rate can vary with market interest rates, the margin stays the same. This is how the interest rate on an ARM can fluctuate over time, with the lender being protected against inflation, which might reduce the real value of the loan payments.
The margin on an adjustable rate mortgage (ARM) loan changes as the index changes. An ARM loan is structured in a way that the interest rate is based on an index, such as the U.S. Prime Rate or the London Interbank Offered Rate (LIBOR). The margin is a fixed percentage added to the index value to determine the new interest rate.