In a difficult housing market, the best thing people can do is investigate all of their options by doing research and asking a lot of questions.
If you have less than perfect credit, you may be thinking of about getting an ARM with a low “teaser” rate. But before you jump into that, make sure you know all the facts about teaser rates and what they can mean to your financial health.
What exactly is a teaser rate? Great question. It’s a low interest rate that applies at the beginning of the loan for a specific period of time, but it does not apply to the entire term of the loan. Consider asking these questions regarding these types of loans:
1. How Long are Teaser Rates in Effect?
Is this a fully amortizing rate? Is only interest being paid during the teaser-rate period? If that’s the case, then you’ll have much larger monthly payments at the end of the teaser-rate period, and you may have a harder time selling your home because you’ll have a high mortgage balance.
2. Is This Like an Interest Only Mortgage?
Are the low up-front costs going to outweigh the possibility of foreclosure?
In addition to teaser rates for mortgages, there are also credit card teaser rates, and is it a good idea to transfer balances from high-interest cards to those with low teaser rates?
As most people probably aware, each time you apply for a new credit card, the credit company accesses your credit report, and each time your reports are accessed, it shows up on your credit report. Your score could go down every time it’s accessed. It may be better for your credit score if you keep long-term relationships with just a few creditors than changing your card each time the new teaser rate expires.
You should also know that credit card teaser rates are fickle. If you make one late payment, you could go from 0% interest to 36%. All this is in the fine print that few consumers ever read. They don’t read past “0% interest!” You’ll also be interested to know what “late” actually means to the credit card companies. Make sure you read and understand the fine print.
Always be wary of teaser rates. Don’t gamble your future betting that your income will be higher down the road. Get your monthly payments in early. Call the company and ask for a lower interest rate.