Indexes and Linking

For our purposes, an Index is just a scale by which we report the value of a financial asset, or a pool of financial assets, through time.  We call these assets Reference Assets.  Many financial indexes already exist, but the Total Return of any financial asset can be computed and recorded by way of an index.

With an Index Mortgage , the mortgage lender decides the Reference Assets in respect of which it will offer Indexes and the mortgage borrower may choose to Link the mortgage debt to any or all of those Indexes.  The borrower can then change or remove those Links whenever it chooses.

By Linking, the borrower creates a mathematical association between Index performance and the mortgage interest rate.  In short, Linking means that changes in Index Values inversely reflect in the mortgage interest rate.  We call the result the Indexed Rate.

Linking is an abstraction, in that it has no consequence “outside” of the mortgage.  For example, Linking gives the borrower no ownership interest in the Reference Assets the value of which is reported by the Index.

“One advantage of the Index Mortgage is that it does not require any “relearning” and is relatively easily explained using well understood terms …”

Citigate Dewe Rogerson, LaunchSure Report