Most ARM rates are tied to the performance of one of three major indexes: Weekly constant maturity yield on one-year Treasury bill – The yield debt securities issued by the U.S. Treasury are paying, as tracked by the Federal Reserve Board 11th District cost of funds index (COFI) – The interest financial institutions in the western U.S. are paying on deposits they hold The Secured Overnight Financing Rate (SOFR) – The SOFR has replaced the London Interbank Offered Rate (LIBOR) as the benchmark rate for ARMs Your loan paperwork identifies which index a particular ARM follows. To set ARM rates, mortgage lenders take an index rate and add an agreed-upon number of percentage points, called the margin. The index rate can change, but the margin does not. For example, if the index is 1.25 percent and the margin is 3 percentage points, they are added together for an interest rate of 4.25 percent. If, a year later, the index is 1.5 percent, then the interest rate on your loan will rise to 4.5 percent.