Skip to content

Forward Rates and Indexed Loans

Many modern loan products (especially ARMs and HELOCs) use benchmark interest rates like SOFR, Prime, or 1-Year CMT to determine monthly payments. This module supports both static and forward-looking indexed loans via a structured forward rate file.

Supported Indexes

You can model any loan tied to a published index:

  • SOFR (Secured Overnight Financing Rate)
  • Prime Rate
  • Treasury CMT (1Y/5Y/7Y/10Y)
  • Custom indexes (e.g., LIBOR, BSBY, Fed Funds) with your own forward curve

Forward Rate File

The model reads /utils/data/macroeconforward.txt which should contain:

Date    Index1  Index2  ...
2025-07-01  5.30    7.75
2025-08-01  5.32    7.75
...

Each row represents projected rates for a future month. All values are expressed in annualized percent.

Example: ARM With SOFR Index

mortgage amortize \
  --type arm \
  --index SOFR \
  --margin 2.75 \
  --balance 400000 \
  --rate 6.0 \
  --term 360
  • --rate: used as the initial teaser rate
  • --index: specifies which forward rate column to use
  • --margin: added to the index rate for effective interest
  • Monthly rates are pulled from the forward file using the loan's payment schedule

Customizing the Curve

To simulate alternate economic environments, simply replace or modify the forward curve in macroeconforward.txt.

You can also support historical rate analysis by creating a combined file like:

Date        SOFR
2022-01-01  0.05
...
2025-07-01  5.30

Common Use Cases

  • Adjustable Rate Mortgages (ARMs)
  • HELOC repayment modeling
  • Forward-looking refinance feasibility
  • Rate shock stress testing

See architecture.md for implementation details and integration options.