in conjunction with Adjustable-Rate Mortgages, the interest rate indicated by the sum of the current value of the index and margin applied to the loan. This rate is the interest rate that is used to calculate monthly payments in the absence of constraints imposed by the initial rate or caps.
Example: An adjustable rate mortgage is indexed to the one-year treasury bill rate. The current value of the index is 6%. Amargin of 2.5 percentage points is applied to the loan. The fully indexed rate is 8.5%. However, the loan has an initial rate of 7.5% which determines the interest rate for the first year. When the rate is adjusted, the fully indexed rate rises to 10%. A cap of 2 percentage points limits the adjustment in the rate to only 9.5%. If there had been no cap, the interest rate would have risen to 10%.
