Definition
A teaser rate (or introductory rate) is a promotional interest rate, below the normal market rate, valid for a limited period (often 3 to 12 months). The borrower benefits from reduced cost at the start, then the rate returns to the standard level specified in the contract.
Common examples: - **Home equity line of credit (HELOC)**: some banks offer prime - 0.5% for the first 6 months, then prime + 0.5%. - **Balance transfer credit cards**: 0% or 1.99% for 6-12 months on transferred balances. - **Auto loans**: 0% financing for 24-36 months on certain vehicles.
Caution: the true cost of a product with a teaser rate is the annual percentage rate (APR) over the full term, not the promotional rate. A HELOC at prime - 0.5% for 6 months then prime + 0.5% costs more long-term than a competitive fixed-rate mortgage.