Dictionary of Real Estate Terms: initial rate period
initial rate period
the time from origination of an Adjustable-Rate Mortgage (ARM) and the expiration of the initial interest rate. The period usually extends to the date of the first allowable interest rate adjustment. After this period, the loan's interest rate is adjusted to conform with the index applied to the loan.
Example: An ARM was originated with an initial interest rate of 4%. The mortgage contract pegs the interest rate at the current yield on 1-year Treasury securities plus 2 percentage points. At the end of the initial rate period (the first year, in this case), the Treasury index stood at 2.5%, so that the interest rate on the loan was raised to 4.5% to conform.
