What is a dual index mortgage?

A type of mortgage where the interest rate paid on the outstanding balance is indexed to a interest rate benchmark plus a margin, and the actual total mortgage payments are linked to a benchmark of wages and salaries for workers in a given economy or region. The initial mortgage payment is set at a certain level and rises or falls according to the wage and salary index.

The rate at which payments increase or decrease can differ substantially from the rate at which the actual interest rate on the mortgage rises or falls. When the payment is less than a calculated interest-only payment, based on the interest rate of the mortgage, negative amortization is created.

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