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 What is a Dual Index Mortgage?Got bad credit?Compare rates from up to 4 lenders for refinancing loans.A mortgage on which the interest rate is adjustable based on an interest rate index, and the monthly payment adjusts based on a wage and salary index. Dual index mortgages (DIM) are not written in the U.S., but they are common in Mexico. From the standpoint of the borrower, however, the DIM is nothing like an Adjustable Rate Mortgage (ARM). The initial payment is relatively low, consistent with what the borrower can afford. Typically the loan balance on a DIM will rise for many years before it begins to decline. The payment made by the borrower changes every month in line with changes in an index of wages and salaries. Having the borrower's payment tied to a wage and salary index and the lender's income tied to an interest rate index is what makes it a "dual index mortgage". The expectation is that the borrower's payment will eventually rise to the point where it fully covers the interest and the balance will begin to decline. There is only one "minor" problem. If wages and salaries in Mexico don't keep up with inflation, the payments made by borrowers aren't going to rise fast enough for this to happen. At the end of the terms, there will be unpaid balances. While lenders in Mexico have written some DIMs on which they accept this risk, in most cases they have insurance from the Mexican government, which stands to take the loss. |