Mortgage Refinancing – Watch Out for Teaser Interest Rates

Mortgage lenders often use teaser interest rates to hook unsuspecting homeowners with unbelievable low mortgage rates. These teaser rates and the mortgage payments they are based on are only valid for a short period of time before the contract mortgage rate takes over. Here are several tips to help you avoid payment shock from a teaser rate when refinancing with an Adjustable Rate Mortgage.

Mortgage lenders frequently use teaser rates on Adjustable Rate Mortgages to get their phones ringing. The problem with these loans is that many homeowners think the teaser rate is their contract mortgage rate and don't understand that the teaser is only valid for a short period of time. At the end of the introductory period, often only six months, the lender adjusts your mortgage to the contract rate and the payments go up. For homeowners who have budgets stretched to the limit before the adjustment, this results in payment shock.

Teaser rates are a largely responsible for the soaring number of foreclosures in the United States. Homeowners who do not fully understand their interest only or option Adjustable Rate Mortgages overextend themselves and cannot afford the payments when the lender resets their payments. When used for the short term Adjustable Rate Mortgages have very little risk and offer low payments; however, if you have little tolerance for financial risk you should avoid using Adjustable Rate Mortgages for the long run.

You can learn more about your mortgage refinancing options, including costly mistakes to avoid with a free mortgage tutorial.