Definition: The base rate used for an adjustable rate loan to which a percentage is added, which creates the interest rate charged to the consumer by the lender. The index rate is agreed upon at loan inception and can be any one of the following: one-, two-, three-, five-, seven- or 10-year treasury bill rate; LIBOR (London Interbank Offered Rate); Bond Buyer's 20 Bond Index; or 11th District Cost of Funds, among others.
Examples: Before selecting an index, it's a good idea to compare the track history of an index over the past few years, realizing, of course, that past performance does not predict the future.
