Teaser Rate Definition

A so-called "teaser rate" is a highly-advertised interest rate for some initial period of an adjustable rate mortgage. The teaser rate is always significantly lower the standard market rate and appears to be a great deal for a new mortgage loan.

However, the teaser rate is in effect for only a short period-usually less than one year-and the adjustable rate mortgage loan’s interest rate will soon be adjusted to the indexed rate that is usually higher than the standard market rate. Potential homebuyers should examine the terms of any adjustable rate mortgage-while an adjustable rate mortgage might be a sound decision, an ephemeral teaser rate should not be confused with a long-term low interest rate.