A loan in which payments change in response to changes in an index such as the Consumer Price Index. Indexed loans are usually long-term, since such loans might potentially be affected by many different market factors. One of the most common factors that a loan might be indexed for is inflation, since prices typically rise over time and the principal amount of the loan thus loses value with every time period, benefitting the borrower and hurting the lender. The maturity, interest or principal of an indexed loan may all be adjusted, depending on the structure of the loan.
Related information about indexed loan:
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Definition of indexed loan: A loan in which payments change in response to changes in an index such as the Consumer Price Index. Indexed loans are usually ...
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Long-term loan in which the term, payment, interest rate, or principal amount may be adjusted periodically according to a specific index.
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- Fully Indexed Option Payment
If the borrower pays the fully indexed loan payment every month on a 30-year loan, two things will happen. First, the loan balance will reduce every month.