What’s a mortgage “teaser” rate?

Many ARMs are offered with a “teaser rate,” a low interest rate available at the start of the loan for a few months or a year.

From the borrower’s perspective, it’s important to know how long the teaser rate will last (longer is better), and whether it is a fully-amortizing rate — that is, whether all interest is being paid during the teaser-rate period. If not, look out — you can expect steeper monthly payments when the teaser period ends and a much harder time selling the house because the mortgage balance will have grown.

Loans such as option-ARMs, interest-only mortgages, 2/28 and 3/27 mortgages are associated with low up-front costs — and steep foreclosure levels.

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Posted in: Mortgages

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