What term describes a temporary introductory rate used at loan origination in an ARM?

What term describes a temporary introductory rate used at loan origination in an ARM?

• A. Teaser Rate
• B. Margin
• C. Fully Indexed Rate
• D. APR

Answer: (A)

In an ARM, lenders often set a temporary, promotional rate at loan origination to attract borrowers. That temporary, low rate is known as a teaser rate. It lasts for a defined initial period, after which the rate adjusts based on the current index plus the loan’s margin. The teaser rate is not the ongoing rate, the fixed component added to the index, or the overall cost measure used for disclosure. The margin stays fixed, used with the index to determine future adjustments, and the fully indexed rate is the rate after the teaser period ends. The APR is a broad annualized cost that includes fees and points, not the introductory rate itself.

In an ARM, lenders often set a temporary, promotional rate at loan origination to attract borrowers. That temporary, low rate is known as a teaser rate. It lasts for a defined initial period, after which the rate adjusts based on the current index plus the loan’s margin. The teaser rate is not the ongoing rate, the fixed component added to the index, or the overall cost measure used for disclosure. The margin stays fixed, used with the index to determine future adjustments, and the fully indexed rate is the rate after the teaser period ends. The APR is a broad annualized cost that includes fees and points, not the introductory rate itself.