The Margin Paradox in Adjustable-Rate Mortgages

Abstract Theoretical studies have shown that the features of adjustable-rate mortgages are major determinants of the margin. This study uses a large national sample of over 800 adjustable-rate mortgages for the period 1984–1993 to test these relationships. It is shown that only the initial discount and the index are consistently related to the margin. Moreover, these variables explain only a small portion of the variation in the margin.