Which option is NOT a determinant of a variable mortgage rate?

• A. Profit margin
• B. Customer's credit score
• C. Cost of funds
• D. Competition in the market place

Answer: (B)

In a variable-rate mortgage, the rate is determined by an index plus a margin that the lender sets. The margin represents what the lender charges above the index to cover costs and earn a profit, and it can be influenced by how expensive it is for the lender to fund the loan and how competitive the market is. Therefore, profit margin, cost of funds, and competition in the marketplace all shape the rate that appears after the index.

The borrower's credit score, while important for overall creditworthiness and qualification, does not directly set the rate in the standard index-plus-margin formula used for variable rates. It may affect eligibility, risk tier, or other aspects of the loan process, but the actual rate movement comes from the index and the lender’s margin, not the credit score itself.