Initial Interest Rate

The initial interest rate refers to the interest rate of a mortgage during it’s first few months or years after the commencement.

This period of initial interest rate is referred to as the initial rate period.

During which interest rate can either be an index rate plus a margin or a fixed rate.

After the initial rate period, interest rate on the home loan reverts to a typical ARM.

For example, for a 5/1 ARM, it comes with an initial period of 5 years. The interest rate during this period is the initial interest rate.

Prepayments during the initial period can come with penalty fees as lenders offering very low attractive rates need to cover their losses.