Finance
A 'teaser rate' on a Nebraska ARM mortgage refers to:
AThe rate charged during the first month only
BAn artificially low introductory rate that expires after a set period, after which the rate adjusts to the indexed market rate✓ Correct
CA rate that teases borrowers into refinancing
DA promotional rate only available to first-time buyers
Explanation
Teaser rates are artificially low introductory rates on ARMs that make the initial payments attractive. When the teaser period expires, the rate resets (often significantly higher), causing payment shock for unprepared borrowers.
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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.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
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