Teaser Rate
An initial rate on an adjustable-rate mortgage (ARM). This rate will typically be below the going market rate, and is used by lenders to entice borrowers to choose ARMs over traditional mortgages. The teaser rate will be in effect for only a few months, at which point the rate will gradually climb until it reaches the full indexed rate, which will be a static margin rate plus the floating rate index to which the mortgage is tied (usually the LIBOR index). Investopedia Says:
The use of teaser rates tends to grow dramatically during times when long-term interest rates move toward historical lows. Lenders stand to make much more money on ARMs if interest rates rise, while borrowers with ARMs will be faced with high interest payments. Related Terms:
Adjustable-Rate Mortgage - ARM
Cap
Floater
Index
Initial Interest Rate
Initial Rate Period
Interest Rate
Lifetime Cap
Mortgage
Option Adjustable-Rate Mortgage - Option ARM |