What is an Introductory Teaser Interest Rate?
It’s actually quite simple. An introductory teaser rate is a temporary, low-interest rate offered at the beginning of a loan or credit product, such as a mortgage, credit card, or adjustable-rate loan. This rate is designed to attract borrowers by offering more favorable terms initially. Here are some key points about introductory teaser rates:
Duration: The teaser rate is typically in effect for a limited period, which can range from a few months to a few years, depending on the loan type and lender.
Post-Teaser Rate: After the introductory period ends, the interest rate usually adjusts to a higher rate, which could be a fixed rate or a variable rate tied to an index.
Purpose: Lenders use teaser rates to attract new customers by offering them initially lower monthly payments. This can be particularly appealing to borrowers who want to take advantage of lower rates in the short term.
Considerations: Borrowers should carefully review the terms of the loan to understand how the interest rate will change after the teaser period ends. It's essential to consider whether they can afford the higher payments once the rate increases.
Common Uses:
Credit Cards: Many credit cards offer a 0% introductory APR on purchases or balance transfers for a specific period.
Mortgages: Adjustable-rate mortgages (ARMs) often have an initial fixed-rate period with a lower teaser rate before the rate adjusts periodically.
Home Equity Lines of Credit (HELOCs): Some HELOCs offer an initial teaser rate for a certain period before adjusting to a variable rate.
While teaser rates can provide short-term savings, borrowers should be aware of the potential for higher costs over the life of the loan and plan accordingly.