In general, the shorter your adjustable - rate mortgage's
initial teaser period, the lower its starting mortgage rate.
With an adjustable rate program, there is a generally an introductory or
teaser period where the initial interest rate and monthly payment are low.
You'll pay less up front with such mortgages but you may well be foreclosed when
teaser periods end.
After
the teaser period ends, the loan's mortgage rate adjusts annually to reflect current market conditions.
The savings of an ARM can be substantial while it's in
its teaser period.
Once
the teaser period is over — 1, 2, 3, 5, 7, or 10 years — the loan goes through at least one reset a year where the interest rate changes.
They know that most folks won't pay off large transfers during
the teaser period and will end up paying the normal interest rate on the larger amount they now owe.
Of course, you come out ahead if you do pay the transfer off during
the teaser period, particularly if they offered you a zero percent interest rate.
Lenders are wondering how will the borrowers make their payments after
the teaser period expires?
These alluring introductory rates aimed to attract new customers with the idea that these individuals would stay on board once
the teaser period ended, typically in several months.
After
that teaser period, the card's standard annual percentage rate will kick in.