A few lenders use their own cost of funds, over which, unlike other indexes, they have some control. You should ask what index will be used and how often it changes. Also ask how it has behaved in the past and where it is published. The amount of the margin can differ from one lender to another, but it is usually constant over the life of the loan. Therefore, in comparing ARMs, look at both the index and margin for each plan.
Some indexes have higher average values, but they are usually used with lower margins.
Be sure to discuss the margin with your lender. Some lenders offer initial ARM rates that are lower than the sum of the index and the margin. Additionally, very large discounts are often arranged by the seller. The seller pays an amount to the lender, who then provides you a lower rate and lower payments early in the mortgage term. Utilizing such, the seller may increase the sales price of the home to cover the cost of the buydown while actually decreasing the buyer's monthly payment.