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Most likely the 4% is not a teaser rate but a payment rate. The mortgage being offered is a negative amortization option ARM. For the initial period, you can make payments as if the interest rate were 4%. The additional unpaid interest is capitalized (added to the loan balance). The privilege of borrowing more money expires in 5 years or when your total loan balance gets 15% above your initial balance.

Oh, and the actual rates on this mortgage are much higher than on conventional mortgages.


Thanks for the correction. "Teaser rate" is for a different kind of "creative" mortgage.

Is there a general term for these "creative" mortgages that let people pay less than going interest rates, basically on the presumption that they will be able to refinance or sell with the home worth enough more than the purchase price to cover the balance and fees? I use "teaser rate" loosely as a generic term, but I agree it's not correct.
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