What is the interest rate called when it is 2.5% below the fully-indexed rate?

The term for an interest rate that is set below the fully-indexed rate, such as being 2.5% lower, is known as a discount rate. This type of rate is often used to make an initial offer on a loan more attractive to potential borrowers. The discount rate reflects a temporary reduction in interest, enticing borrowers to consider a loan product, especially in a competitive market.

The concept of a discount rate is significant because it illustrates how lenders may use lower initial rates as a strategy to attract clients, even though the rate will adjust later based on market conditions or an underlying index. Understanding this term is essential, as it helps borrowers navigate their options and recognize when a rate may increase after an introductory period.