A company promises a super-low mortgage interest rate, with surprisingly low monthly payments: less than 1% even. Wow! What a low rate! Low interest rates are good, right? What could be wrong with a low interest rate?

It’s called a teaser mortgage interest rate.

Your credit card company figured this out years ago. They mail you an offer for 0% APR on a new card. Then, in the fine print, they specify that after a year the rate will go up to whatever you like – 14%, 17%, 21%, or whatever. Everyone will swoop up the card for the low introductory rate, enjoy a year free of interest, transfer balances or rack up purchases, and then – boom! They’re paying a terrible rate on a balance they can’t pay off.

Teaser Mortgage Interest Rates:

Teaser mortgage interest rates are kind of like that. They advertise an especially low rate. That rate applies for the first year. The second year, the rate is slightly higher. The third year, it increases slightly higher, until it reaches your final interest rate.

Except, instead of a thousand or two on a credit card, it’s a hundred thousand or more on a house. What started out as affordable monthly payments suddenly become much higher, especially if you want to pay any of the principal off.

Teaser rates prey on our short-term thinking. Sure, that interest rate will be pretty high in four or five years . . . but right now, 0% financing! Wow! We figure we’ll be able to afford it in a few years . . . we just want a little extra breathing room right now, that’s all. (We all forget that we’ll probably want a little extra breathing room in the future).

Don’t let people tease you! It’s more important to have an honest mortgage broker who can explain your options than it is to chase the flashiest advertising with the lowest numbers.

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