Fully-Indexed Rate
The true rate on an adjustable loan, calculated as the current index value plus the fixed margin. It's the rate you'd actually pay once any introductory or teaser rate expires.
The fully-indexed rate is what an adjustable-rate loan really costs: the current index value plus the loan's fixed margin. It's distinct from any temporary introductory or teaser rate offered for the first months or years. When the intro period ends, the loan resets to the fully-indexed rate — and underwriters often qualify the borrower at that higher number, not the teaser.
Fully-indexed rate = Index + Margin
Why it matters in investor lending
A loan advertised at a low start rate can reset meaningfully higher. The fully-indexed rate tells you the payment you'll face after reset, which is the number that determines long-run cash flow and whether your DSCR still holds. Lenders frequently underwrite the DSCR at the fully-indexed (or a stressed) rate to make sure the property still covers its payment when the teaser disappears.
A worked example
An adjustable DSCR loan offers 6.99% for 2 years, then adjusts. The margin is 3.50% and SOFR is 5.30%.
Teaser rate (years 1–2): 6.99%
Fully-indexed rate at reset: 5.30% + 3.50% = 8.80%
If the property's rent supported the loan at 6.99% but not at 8.80%, the deal only looked like it qualified. A careful investor underwrites at the 8.80% fully-indexed rate to confirm the cash flow survives the reset.
How it's used in investor lending
Always ask for the fully-indexed rate, not just the start rate, on any adjustable product. Model your PITIA and DSCR at that rate to stress-test the deal. Compare it against a fixed-rate alternative — sometimes a slightly higher fixed rate beats a low teaser that resets above it. Caps in your note limit how far the fully-indexed rate can climb at each reset and over the life of the loan, so confirm those too.
Why the gap can surprise investors
The danger is psychological: the advertised teaser rate is the number you remember, but the fully-indexed rate is the number you'll pay for most of the loan. An investor who buys based on a low start rate and a thin DSCR can find the property suddenly cash-flow negative at the first reset. Treat the teaser as a temporary discount and the fully-indexed rate as the real rate. If your deal only works at the teaser, it doesn't really work — and a refinance takeout you're counting on may not be available if rates have risen.
This is general information, not financial advice.
Frequently asked questions
Why qualify at the fully-indexed rate instead of the teaser rate?
Because the teaser rate is temporary. Once it expires, the loan resets to index plus margin — the fully-indexed rate — and that's the payment you'll live with for most of the loan. Underwriting at the fully-indexed rate confirms the property's cash flow and DSCR still work after the reset, protecting both you and the lender.
How do I calculate the fully-indexed rate?
Add the current index value to your loan's fixed margin. For example, SOFR at 5.30% plus a 3.50% margin equals an 8.80% fully-indexed rate. The index changes over time, so the fully-indexed rate at your next reset depends on where the index sits then.
Does a fixed-rate loan have a fully-indexed rate?
Not in an ongoing sense. A fixed-rate loan is set once and never adjusts, so there's no reset to a fully-indexed rate. The concept applies to adjustable and floating-rate loans, where the rate periodically resets to index plus margin.