So we have all seen the infomercials, internet ads and sometimes even in the local newspaper advertising incredible home loan interest rates of 4.2, 3.6 and even the occasional 2.8%.  If you're in the market to purchase a new home, you've probably been shopping around and you realize that the "norm" yet always fluctuating is usually around 6.75%.  So how and why are these so-called banks and lenders offering such extreme differences?  They're TEASING you, hence the term "Teaser rate". 

Such rates are frequently driven by dishonest mortgage brokers or self divulged loan officers, rarely by trustworthy mortgage bankers. The difference (http://en.wikipedia.org/wiki/Mortgage_broker) all though both may be paid a commission for their work, brokers are independents working with a multitude of different lenders (not all banks) that will pay the highest commission to them and rarely work in the best interest of the client (you).  Mortgage lenders sell their own products,  having set standards and bylaws they must follow, and are often graduates that hold a vast knowledge of different kinds of loans that will benefit different types of clients.

Frequently these rates are come with an array of stipulations that limits who, when and how buyers can acquire such rate or time constraints.  Usually it's not a locked in rate leaving the buyers little time to compile the paperwork needed for the loan and causing  the rate to change.  Furthermore the interest rate is not the only factor to consider when purchasing a home.  I ALWAYS tell my clients that it’s a "package" deal.  Don't become too focused on the rate, your eyes will deceive you.  The teaser rate may be very low, but the lender maybe charging much higher prices on the back end.  Often, the rate does not include the Brokerage Fee, Loan Origination Fee, Loan Discount, Processing Fee, Credit Report Fee, Transaction Fees and many more. A reputable lender will tell you the "package" price and always give you a "Good Faith Estimate" (required by RESPA) that will give you the break down of all the charges.

The most important thing to remember is if it sounds too good to be true, it probably is.  Always use someone reputable that you know you can trust, communicate your intentions short and long term, let the lender know you and ask a lot of questions!