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.

BREAKING DOWN 'Teaser Loan'

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.

RELATED TERMS
  1. Credit Card Teaser Rate

    A lower-than-normal interest rate that a credit card company ...
  2. Teaser Rate

    An initial rate on an adjustable-rate mortgage (ARM). This rate ...
  3. 100% Mortgage

    A mortgage loan in which the borrower receives a loan amount ...
  4. Credit Crisis

    A crisis that occurs when several financial institutions issue ...
  5. Initial Rate Period

    The period of an introductory or "teaser" interest rate on a ...
  6. Second Chance Loan

    A type of loan associated with subprime lending and borrowers ...
Related Articles
  1. Investing

    Financing Basics For First-Time Homebuyers

    If you're looking to get your first mortgage, there are many financing options available.
  2. Investing

    Subprime Lending: Helping Hand Or Underhanded?

    These loans can spell disaster for borrowers, but that doesn't mean they should be condemned.
  3. Personal Finance

    Top 6 Mortgage Mistakes

    These common errors could end in foreclosure.
  4. Personal Finance

    Home Improvement Loans: What Are Your Best Options?

    If you plan on taking out a home improvement loan, you should know what your options are and which ones might be best for your situation.
  5. Personal Finance

    5 Risky Mortgage Types To Avoid

    There are plenty of ways to end up with a bad mortgage. The risks of these five should make every homebuyer think twice before signing.
  6. Personal Finance

    Interest-Only Mortgages: Home Free Or Homeless?

    These loans can be beneficial, but for many borrowers, they present a financial trap.
  7. Personal Finance

    Understanding Home-Equity Loan Rates

    Shopping is the most important part of getting a home-equity loan. You're going to have to live with the terms for a long time.
  8. Personal Finance

    8 Top Alternatives to Car Title Loans

    Before you sign up for a car title loan, investigate these 8 alternate strategies.
  9. Trading

    How To Borrow For Free

    People will do anything to get a little extra money. If you need some cash, here are some ways you can borrow without much hassle.
  10. Investing

    Mortgages: Fixed Rate Versus Adjustable Rate

    Choosing the right mortgage can help homebuyers avoid costly mistakes. Learn the difference between fixed- and adjustable-rate loans.
RELATED FAQS
  1. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ... Read Answer >>
  2. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
  3. What are the differences between delinquency and default?

    Find out more about loan delinquency, loan default, and the difference between a loan borrower defaulting and being delinquent ... Read Answer >>
  4. How do construction loans work?

    Construction loans are obtained either by the prospective home owner or the actual builder. There are two types of construction ... Read Answer >>
Trading Center