Teaser rate – definition:
The below-market interest rate that is offered by lenders or credit card companies to gain new business. Offering a below-market interest rate often encourages people to switch credit cards or lenders to save money. Also known as an introductory rate.
Have you ever seen a mortgage rate advertised that seemed “too good to be true”? It probably is. Banks sometimes offer what is called a “teaser” rate. It is designed to get you in the door thinking you are getting this fabulous rate. It might be a great rate and the right choice for you. BUT be sure to read the fine print and ask lots of questions…or better yet, bring it to us to review. If the ad says “1.99% fixed interest rate for first six months”…what will the rate go up to after six months and what other perks are you giving up? Don’t forget there is much more to a mortgage than rate. Check what the APR is for the full term. It may work out to be the same or higher rate as a full option mortgage.
Another thing you want to watch out for; is the “too good to be true” rate variable or fixed? Sometimes a teaser rate can be offered with a variable rate too. A variable rate is based on the prime lending rate plus or minus a variance. The same as the fixed rate teaser, after a few months your rate will increase. There is a higher risk with a variable rate because no one knows for certain what the prime lending rate will be in 6 months let alone 5 years. Again promotions like teaser rates can sometimes be light on the options. They may not be portable, transferable or assumable and what are the prepayment options?
Do you now have more questions than before you read this? Contact us and we would be happy to educate you on the all the mortgage options available.