Teaser Loan


DEFINITION of 'Teaser Loan'

An adjustable-rate mortgage loan in which the borrower pays a very low initial interest rate, which increases after a few years. Teaser loans try to entice borrowers by offering an artificially low rate and small down payments, claiming that borrowers should be able to refinance before the increases occur.


Teaser loans are considered an aspect of subprime lending, as they are usually offered to low-income home buyers. Unfortunately, when these borrowers try to refinance the loan before the rate increases, most will not qualify for standard mortgages. This leaves borrowers with increased monthly payments, which many cannot afford. This method of loaning is considered risky, as default rates are high.

  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
  3. Teaser Rate

    An initial rate on an adjustable-rate mortgage (ARM). This rate ...
  4. Default

    1. The failure to promptly pay interest or principal when due. ...
  5. Subprime Loan

    A type of loan that is offered at a rate above prime to individuals ...
  6. Payment Shock

    The risk that a loan's scheduled future periodic payments may ...
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