Initial Rate Period

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.

BREAKING DOWN '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.

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