Finance
In Minnesota, a 'teaser rate' on an adjustable-rate mortgage is:
AThe highest possible rate under the loan terms
BAn artificially low initial interest rate that adjusts to a higher market rate after the introductory period✓ Correct
CThe rate offered to borrowers with the highest credit scores
DA rate that is guaranteed for the life of the loan
Explanation
A teaser rate is a below-market introductory interest rate on an ARM that expires after a short period, after which the rate adjusts to a market-based rate. Teaser rates can help buyers qualify initially but lead to payment shock when the rate increases.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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