Reverse Mortgage Glossary
The index is a base interest rate that undergirds the initial interest rate (IIR) for a variable-rate HECM.
The fully-indexed IIR is composed of the index plus a margin charged by the lender. For example, if the index is 0.50% and the margin is 2.50%, then the fully-indexed IIR is 3.0%. If the index increases, then the IIR will increase as well.
The most commonly used indices for the variable-rate HECM are the 1-Month LIBOR and the 1-Year LIBOR.
Note that there is no index for the fixed-rate HECM because the IIR is set for the life of the loan.