Reviewed by Jeff Shin, NMLS #1041652. Updated .
Also called: SOFR, fully indexed rate.
Index plus margin
The CFPB sums it up as index plus margin equals your interest rate, subject to any caps. The lender picks the index when you apply. The margin stays the same for the life of the loan, and it can vary from one lender to another, so it is worth comparing when you shop.
SOFR
Fannie Mae requires its ARMs to be tied to SOFR, using the 30-day average published by the Federal Reserve Bank of New York. SOFR measures the cost of borrowing cash overnight with U.S. Treasury securities as collateral. Fannie Mae caps the margin on its ARMs at 3 percentage points, and the rate can never fall below the margin.
Caps and the fully indexed rate
Caps limit how much the rate can change at the first adjustment, at each later adjustment, and over the life of the loan. The fully indexed rate is today’s index plus your margin, roughly where the loan would land if it adjusted now. Page 2 of the Loan Estimate has an Adjustable Interest Rate table with the margin, index, caps, and highest possible rate.
Example
If the 30-day average SOFR is 4.00% and your margin is 2.75%, the fully indexed rate is 6.75%. Your caps decide how much of that move happens at the first adjustment.
Illustrative example only, not a quote. Actual APR and terms vary.
Related terms
Related on BankPricer
Sources
Definitions on this page are summarized from the agencies that set the rules. Lenders can add stricter requirements. Checked October 7, 2026.
Not sure which of these applies to you?
That is usually the actual question. Send the situation rather than the product name — purchase or refinance, primary or investment, price range, and timeline — and you get the structures that fit, with what each one costs.