The initial interest rate is the rate you pay when you first get your loan. On an adjustable rate mortgage (ARM), this rate may be for 5 years (5/1 ARM) or only for the first month.
Lenders are businesses whose primary concern is making money. One of the ways that lenders make money is through charging intereston loans. Interest is basically the cost of borrowing money,from an institution such as a bank. This allows you to make a large purchase without having all of the money that it would cost to make that purchase in your possession.
Lenders may try to entice you to use their services with teaser rates. Teaser rates are usually advertised as very competitive rates that are offered to the potential borrowers with the highest creditscores. The initial interest rate could be very low, but will change after a certain time period.
If you see an advertisement or get an offer with a low initial interest rate, talk to the lender and clarify exactly what will happen after that initial interest rate time period is over. You should also try to work out how much your loan payments will cost after your initial interest changes.
Loans can cost you a significant amount of money over many years. Find the loan that has the best rates and terms for your financial lifestyle rather than just agreeing to the loan that has the lowest initial interest rate. By doing the legwork and figuring out the numbers, you may be able to save yourself money in the long run.
July 8, 2006
