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What is a Teaser Rate?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 August 2016
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    2003-2016
    Conjecture Corporation
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Teaser rates are short-term or introductory rates that are used to attract the attention of consumers and generate new business for ongoing financial services. Generally, a teaser rate is only in effect for a short period of time. After the duration of the teaser rate has expired, this introductory rate is withdrawn and a more permanent and often higher rate goes into effect.

In most cases, a teaser rate will be quite attractive to the prospective customer. The rate is usually less than the current market rate for comparable services, which helps to grab the attention of consumers. Along with the introductory rate, the provider also quotes the rate structure that will be in place once the short-term teaser rate expires. Unfortunately, many consumers tend to overlook this data until the expiration takes place, and find themselves saddled with a rate that is above current market standards.

The concept of a teaser rate is a common incentive with credit card offers. For example, a credit card issuer may offer new customers an initial interest rate that is very attractive. The rate may be in effect for up to six months, assuming that the customer abides by the terms and conditions of the credit agreement. In the event that the new customer fails to comply with the terms, the teaser rate expires early and is replaced by a higher credit card rate.

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Mortgage companies also make use of the teaser rate approach. An adjustable rate mortgage may begin with a guaranteed teaser rate that is below current market rates. The teaser rate may be in effect for any time frame from one month to up to seven years before the rate begins to fluctuate. There are some examples of a teaser rate being in effect on a mortgage for as long as ten years.

Just as with credit card offers, a teaser rate associated with a mortgage can be revoked if the client fails to comply with the terms and conditions associated with the contract. One or more late payments, even if a ten day grace period is in place, can lead to the revocation of the teaser rate, and allow a higher rate to be applied. Once the teaser rate is lost, there is little to no chance of having it restored for any reason.

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