Teaser rates

ICICI Bank cut home loan rates by bringing back its old teaser home loan rate product till the end of the month (read news).

Wanted to find out what teaser rates mean.

Investopedia says:

“An initial rate on an adjustable-rate mortgage (ARM). This rate will typically be below the going market rate, and is used by lenders to entice borrowers to choose ARMs over traditional mortgages. The teaser rate will be in effect for only a few months, at which point the rate will gradually climb until it reaches the full indexed rate, which will be a static margin rate plus the floating rate index to which the mortgage is tied.”

In most cases, a teaser rate will be quite attractive to the prospective customer. The rate is usually less than the current market rate for comparable services, which helps to grab the attention of consumers. Along with the introductory rate, the provider also quotes the rate structure that will be in place once the short-term teaser rate expires. Unfortunately, many consumers tend to overlook this data until the expiration takes place, and find themselves saddled with a rate that is above current market standards.