What term refers to the interest rate of an adjustable-rate mortgage at the time of closing?

The interest rate of an adjustable-rate mortgage at the time of closing is referred to as the Initial Interest Rate. This rate is the starting point for the borrower’s mortgage payment and is often lower than the rates for fixed-rate mortgages, making it an attractive option for many borrowers. It is crucial to understand that this initial rate is only applicable for a specific period, after which the rate can adjust based on market conditions or a specified index.

In the context of an adjustable-rate mortgage, knowing the initial interest rate is important because it helps borrowers understand what their initial monthly payments will be and how their future payments could change as rates adjust. This dynamic plays a vital role in financial planning and budgeting for the homeowner.

Recognizing the initial interest rate is essential for assessing the overall cost of the mortgage over its lifespan, especially considering that future adjustments may lead to significantly higher payments. This knowledge empowers borrowers to make informed decisions about their mortgage options.