Teaser Rate

A teaser rate usually refers to a very low interest rate loan which teases you with being so cheap for a year or so. It then "resets" to much higher, longer-term market rates.

In the beginning, for most people, their early cash situation when they're buying a home is dire. They need every penny to buy furniture, paint the basement, and fix the bathroom. So teaser rates are a big benefit for most, especially new home buyers.

The problem? Nothing is free. When teaser rates go back to "market rates," banks need to make up for the loss-leader very low pricing they "gave away" in the beginning to attract those borrowers in the first place. And they do.