Initial Interest Rate

Every time you take out a loan, it’s important to read the fine print. That’s because the interest rate you obtain might not be the interest rate you pay over the life of the loan should it be adjusted or reset. The initial interest rate, or teaser rate, is the rate you’d get on Day One of a variable interest rate loan.

But if you’ve got an adjustable or variable rate, well...you might be paying more every time that the Federal Reserve feels the economy needs higher loan payments. The 2008 mortgage crisis was littered with cases of homebuyers who received a teaser rate, only to see their interest payments balloon to unaffordable levels. Foreclosures ensued on a massive scale.

Initial interest rates are typically lower with variable than with fixed rates. That’s why you have to read the contract, and never trust the guy trying to get you to sign the dotted line without a lawyer.

And be wary of anyone who says they can get you a lower rate from your initial rate. Interest rate reduction scams are quite popular and difficult to spot. A finance course would help you avoid them.