Initial Rate Period

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DEFINITION of 'Initial Rate Period'

The period of an introductory or "teaser" interest rate on a mortgage or other loan. The initial rate period varies by loan type and can be as short as one month or as long as several years. Some loans, such as 2-1 or 3-2-1 buydown mortgages, have initial rate periods during which the interest rate increases incrementally.

INVESTOPEDIA EXPLAINS 'Initial Rate Period'

Borrowers should not make a loan choice based only on an initial interest rate. While a loan with an initial low interest rate can seem attractive, low initial interest rates lead to higher interest rates after the initial rate period expires. Borrowers need to understand the mechanics and risks of their choice of a mortgage or other loan. A careful analysis of loan rates and costs should always be performed.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Buydown

    A mortgage-financing technique with which the buyer attempts ...
  3. Real Estate

    Land plus anything permanently fixed to it, including buildings, ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
  6. Teaser Rate

    An initial rate on an adjustable-rate mortgage (ARM). This rate ...
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