Teaser Rate

### What is a teaser rate in the context of mortgage loans? - [ ] A fixed interest rate for a long-term loan - [x] An initially lower interest rate for a limited period - [ ] The highest possible interest rate for a loan - [ ] An interest rate that remains constant throughout the loan > **Explanation:** A teaser rate is an initially lower interest rate offered for a limited period, usually to attract borrowers. ### Teaser rates are most commonly associated with which type of mortgage? - [x] Adjustable-Rate Mortgages (ARMs) - [ ] Fixed-Rate Mortgages - [ ] Balloon Mortgages - [ ] Reverse Mortgages > **Explanation:** Teaser rates are typically offered with adjustable-rate mortgages (ARMs) to lower the initial payments. ### How long does a teaser rate generally last on a mortgage loan? - [ ] 5 years - [ ] 10 years - [x] 6 months to 1 year - [ ] Throughout the loan term > **Explanation:** A teaser rate generally lasts for a brief period, typically from six months to one year. ### What happens to the interest rate after the teaser rate period ends? - [ ] It becomes a fixed rate - [ ] It decreases further - [x] It adjusts to a higher rate based on prevailing market conditions - [ ] It is eliminated > **Explanation:** After the teaser period ends, the rate adjusts to a higher level, aligned with market conditions. ### Why might borrowers be attracted to loans with teaser rates? - [ ] Because they offer long-term stability - [x] Because they reduce initial borrowing costs - [ ] Because they are mandated by the government - [ ] Because they guarantee no increases > **Explanation:** Borrowers might be attracted to teaser rates because these rates reduce initial borrowing costs. ### Are teaser rates only used for mortgage loans? - [ ] Yes, exclusively for mortgages - [x] No, they can sometimes be used for other types of loans - [ ] No, they are primarily used for personal loans - [ ] Yes, excluding any other loan types > **Explanation:** While most commonly used for mortgages, teaser rates can sometimes apply to other types of loans. ### What is a key risk associated with teaser rates? - [x] Potential significant increase in monthly payments after the teaser period - [ ] Constant rate throughout the loan - [ ] Immediate penalty fees - [ ] No flexibility in payment terms > **Explanation:** A key risk is the potential for a significant increase in monthly payments when the teaser period ends and rates adjust. ### Can the interest rate revert to the teaser rate after the initial period in any circumstances? - [ ] Yes, always - [ ] Yes, under specific refinancing options - [x] No, it typically adjusts according to the index - [ ] Yes, subject to lender's discretion > **Explanation:** Teaser rates typically adjust according to the relevant interest rate index after the initial period and do not revert back. ### What determines the adjusted rate after the teaser period? - [ ] Borrower's credit score - [ ] Loan amount - [x] Index and margin - [ ] Original principal > **Explanation:** The adjusted rate is usually determined by the interest rate index and a margin set by the lender. ### In what way do teaser rates serve as a marketing technique? - [ ] By being the constant lowest rate available - [x] By making the initial cost of borrowing more appealing - [ ] By ensuring fixed payments - [ ] By eliminating late fees > **Explanation:** Teaser rates make the initial cost of borrowing more appealing to potential borrowers, thus serving as a marketing technique.