Initial Interest Rate
Initial interest rate is an industry jargon used by mortgage professionals.
It refers to the interest rates on housing loan before it reverts to a “thereafter” rate.
For example, if a home loan is structured by:
Year 1, SIBOR + 0.75%
Thereafter, SIBOR + 1%
The initial interest rate is SIBOR + 0.75%.
If it has:
Year 1, Fixed 1.5%
Year 2, Fixed 1.5%
Thereafter, SIBOR + 1.25%
The initial interest rate is fixed 1.5%.
Initial interest rate are often much lower than what is charged thereafter so that home buyers find the loans attractive enough to consider.
One of it’s selling points is that even if borrowers find the thereafter rates high, they can still take up the loan to take advantage of the low rates and refinance the mortgage when they enter the period of thereafter rates.
The initial rate period is the period of time when the initial interest rate is active.
However be mindful not to be sway by gimmicks and pay attention to the interest that you will actually pay.
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