To encourage borrowers to accept adjustable rate mortgages (ARMs) rather than level-payment mortgages, mortgage originators generally offer an initial short-term introductory rate that is less than the prevailing market mortgage rate. This rate is referred to as a(n):
A) margin rate
B) teaser rate
C) index rate
D) discount rate

Question

Quizplus · Accepted Answer

The introductory rate offered to encourage borrowers to accept adjustable rate mortgages (ARMs) rather than level-payment mortgages is referred to as a "teaser rate." It's typically lower than the prevailing market mortgage rate and is only valid for a short period before the rate resets to a higher rate.

To Encourage Borrowers to Accept Adjustable Rate Mortgages (ARMs) Rather