What is a Teaser Rate?
In a tough housing market, the best thing you can do is thoroughly investigate all of your options. Do your research. Ask a lot of questions. If your credit is less than stellar, you may be thinking of getting an ARM with a low “teaser” rate. Before you do, be sure you know all the facts about teaser rates and what they can mean to your financial health.
What is a teaser rate? It is a low interest rate that applies at the start of the loan for a specified period of time, not the entire term of the loan. Questions you should ask regarding these types of loan:
- How long is the teaser rate in effect?
- Is it a fully amortizing rate -- in other words, is all interest being paid during the teaser-rate period? (If it’s not, you’ll have much larger monthly payments at the end of the teaser-rate period, and you’ll have a much harder time selling your house because the mortgage balance will be larger!)
- Is this an interest-only mortgage?
- Are the low up-front costs going to outweigh the possibility of foreclosure?