Initial Rate Period

AAA

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. Real Estate

    Land plus anything on it, including buildings and natural resources.
  2. Mortgage

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

    A mortgage-financing technique with which the buyer attempts ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Teaser Rate

    An initial rate on an adjustable-rate mortgage (ARM). This rate ...
  6. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
Related Articles
  1. Economics

    How Interest Rates Affect The Housing Market

    Understand how rate changes can affect home prices, and learn how you can keep up.
  2. Options & Futures

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
  3. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  4. Home & Auto

    Option ARMs: American Dream Or Mortgage Nightmare?

    Option adjustable rate mortgages could make or break your home-buying experience.
  5. Credit & Loans

    Getting A Mortgage After Bankruptcy Or Foreclosure

    Millions of Americans had homes foreclosed and millions more went into bankruptcy. Here are the necessary qualifying steps to buying a home again.
  6. Taxes

    Will Itemized Deductions Get You A Bigger Refund?

    April and taxes are due soon. If you need to file your return, you might have to decide if itemizing your deductions this year will net you a better deal.
  7. Home & Auto

    Save $30,000 For A Home Down Payment In 5 Months

    Before tackling mortgage rates, home maintenance costs and utilities, every home buyer must first gather the funds for a mortgage loan down payment.
  8. Credit & Loans

    Getting A Mortgage When Building Your Own Home

    It's much harder to get a loan when you're building a home, not moving into one. Here's where to look and what to expect.
  9. Credit & Loans

    Understanding Loan-to-Value Ratio

    Loan-to-value ratio (LVR) is a tool used to evaluate the risk in a collateralized loan, usually a mortgage loan.
  10. Credit & Loans

    Surprising Ways A Mortgage Affects A Credit Score

    It takes a good credit score to get favorable mortgage rates. Then, how you pay a mortgage will shape your score – just having one can lower it at first.

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center