Finance
In Washington, a 'teaser rate' on an ARM is the initial low interest rate that:
ARemains fixed for the life of the loan
BIs lower than the fully indexed rate and may increase significantly after the initial period✓ Correct
CIs guaranteed not to exceed a specified maximum
DIs negotiated between the borrower and lender only
Explanation
A teaser rate is an introductory rate on an ARM that is artificially low — typically below the fully indexed rate (index + margin). After the teaser period ends, the rate can increase substantially, potentially creating payment shock for the borrower.
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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.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Math Concepts
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