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Teaser Style Mortgages An Attractive Package Yet Poorer Rates

March 20, 2015

A recent promotion from one of Canada’s largest banks offers an introductory rate for 9 months – but an inflated interest rate for the remaining 39 months.

CIBC currently advertises a ‘teaser-rate’ style product for a 4 year fixed rate mortgage, offering 1.99% for the first 9 months of the mortgage and then raising the rate for the remaining 39 months to 2.96% – a dramatic increase and a notably higher rate than the 2.54% offered today in the marketplace. You can find the details of the promotion through this link to the CIBC website.

So what do these teaser style mortgages mean for the average home-owner?

Teaser-style rates try to hook home-owners to take a temporarily low interest rate which then reverts to a higher interest rate on the back end of the term. Teaser-style mortgage rates have not been very popular in Canada; however, they were a popular product in the USA.

The APR (Annual Percentage Rate) over the life of the 4 year fixed mortgage product is 2.69% – the APR being a better indicator of what your actual borrowing rate is over the life of the term when compared to advertised teaser rate. After looking at the fine print, you can see that the 1.99% interest rate is designed to capture eye balls and to disguise what is a mediocre rate of 2.69% over the whole 4 year term.

Of course, every consumer must decide for themselves and do their own due diligence into the fine print of any agreement they sign. The lesson here is merely that all that glitters is certainly not gold.