The margin of an ARM is the:

The initial interest rate of the index refers to the starting rate of a benchmark used to adjust the ARM's interest rate over time. This rate fluctuates based on market conditions and does not represent the margin, which is a separate fixed amount added to the index.

An interest rate cap is a limit on how much the interest rate can increase during any adjustment period or over the life of the loan. While it is a protective feature of some ARMs, it does not define the margin itself, which is specifically the amount added to the index rate.

Subtracting basis points from the index would result in a lower effective interest rate, which is contrary to the concept of a margin. The margin is meant to add to the index, not subtract from it, to determine the total interest rate borrowers will pay.