The fully indexed rate is calculated based on the index, possible indexes could be Prime, LIBOR, COFI, MTA, etc..., plus the margin. The margin will remain constant (the same) for the life of the loan. However, the index is what will vary. An example would be a loan where you have Prime as your index, and Prime is currently 7.5%, and your margin is 2.5%, so your fully indexed rate would be 7.5 + 2.5 = 10.0%. If Prime happens to go down to 6.5% 1 year later, your fully indexed rate would change to 9.0%.

Most loans that offer a monthly payment of any amount less than the fully indexed rate, still require that the borrower qualifies for the loan, at what the payment would actually been fully indexed.

Loans with an adjustable rate feature will adjust to the fully indexed rate when the fixed period has expired.

Always ask your lender what the fully indexed rate is on your particular loan. You may want to ask for historical data on what the index tied to your loan is based on.

A good example is an option arm. This has a completely different fully indexed rate than the rate you are making payments on. Also qualification is typically based on the fully indexed rate as opposed to the low 1% payments available.