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.

  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 ...
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