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.

RELATED TERMS
  1. 3-2-1 Buydown

    A type of mortgage with a series of three initial temporary-start ...
  2. Teaser Loan

    An adjustable-rate mortgage loan in which the borrower pays a ...
  3. Interest Rate Ceiling

    The maximum interest rate that a financial institution can charge ...
  4. Loan

    The act of giving money, property or other material goods to ...
  5. Combination Loan

    1. A transaction consisting of two separate loans for the same ...
  6. Call Loan

    A loan provided to a brokerage firm and used to finance margin ...
Related Articles
  1. Investing

    Financial Institutions: Stretched Too Thin?

    Find out how to evaluate a firm's loan portfolio to determine its financial health.
  2. Personal Finance

    How Banks Set Interest Rates on Your Loans

    Many factors go into how banks set interest rates for loans. Use this information to negotiate the best possible rate when you're borrowing.
  3. Personal Finance

    Personal Loans vs. Car Loans

    How to tell whether a personal loan or a car loan is better for you.
  4. Personal Finance

    5 Risky Mortgage Types To Avoid

    There are plenty of ways to end up with a bad mortgage. The risks of these five should make every homebuyer think twice before signing.
  5. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  6. Managing Wealth

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
  7. Personal Finance

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  8. Retirement

    The Reverse Mortgage: A Retirement Tool

    Discover another way to fund your retirement without having to make payments on a loan.
RELATED FAQS
  1. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ... Read Answer >>
  2. Federal student loan rates: who sets them, why they vary

    Federal student loan rates are set by Congress, not by banks. Learn more about who gets what rate, and how often they get ... Read Answer >>
  3. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
Trading Center