Definition: An introductory interest rate that is temporarily lower than the rate otherwise produced by a loan's later pricing formula.
Example
An ARM begins with a discounted rate before later adjustments use the index plus the margin, subject to caps.
Keep the distinction clear
The initial payment does not establish the maximum future payment. The length of the discount and the later adjustment rules matter.
Related terms
Adjustable-Rate Mortgage (ARM) · Index Rate (ARM) · Margin (ARM)
Keep studying
References: CFPB: Consumer Handbook on Adjustable-Rate Mortgages
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