Teaser Rate Then Floating Rate: What Happens When the Promo Ends
A $300,000 mortgage is advertised at 6% a year. Read the offer closely and the 6% lasts for the first 24 months only. After that the loan floats, at 8.5% if rates stay where they are today. For two years you pay $1,798.65 a month. In month 25 the payment becomes $2,284.40, which is $485.75 more, or 27%. Over 30 years the loan costs $510,732.06 in interest, far closer to a full 8.5% loan than to the 6% in the ad.
A teaser rate, also called a promo rate, is a real discount, but only on the first slice of the loan. The payment you need to plan for is the one that starts when the promo ends. It depends on a floating rate that nobody can promise you.
Loan Calculator models promo-then-floating loans directly: both payments, the full two-phase schedule and what happens if the floating rate climbs.
What should you compare?
Promo loans are easy to misread because the first number you see is the best one. Put these side by side:
- Payment during promo — what you pay in the first months. Useful, but temporary.
- Payment after promo — the payment for most of the loan's life. Budget on this one.
- Promo length — how many months the low rate lasts.
- Floating rate — the rate you assume after the promo. It is an estimate, so test higher values.
- Total interest — the cost of the whole loan, both phases together.
Promo loan vs single-rate loans at a glance
All figures are for $300,000 over 360 months with equal payments.
| 6% for 24 months, then 8.5% | 8.5% for all 30 years | 6% for all 30 years | |
|---|---|---|---|
| Payment, months 1–24 | $1,798.65 | $2,306.74 | $1,798.65 |
| Payment from month 25 | $2,284.40 | $2,306.74 | $1,798.65 |
| Balance after 24 months | $292,404.74 | $295,263.78 | — |
| Total interest | $510,732.06 | $530,426.89 | $347,515.44 |
The promo saves $508.09 a month for two years and $19,694.83 in total compared with 8.5% from day one. Against a loan that really stays at 6%, it costs $163,216.62 more. The promo is a two-year discount, not a 6% loan.
1. The promo phase: a low rate on the full balance
Best for: seeing what the low payment actually buys.
During the promo, the payment is worked out as if the promo rate lasted for the whole term, so it matches a 30-year loan at 6%:
Interest, month 1 = 300,000 × 6% ÷ 12 = $1,500.00
Principal, month 1 = 1,798.65 − 1,500.00 = $298.65Most of each payment is still interest, because the balance is still close to the full $300,000. After 24 payments you have paid $35,572.34 of interest and repaid only $7,595.26 of principal. The balance going into the floating phase is $292,404.74.
That balance is lower than on a loan at 8.5% throughout ($295,263.78), because the lower rate left a slightly larger share of each payment for principal. It is a small head start.
2. The reset: a new payment on what is left
Best for: budgeting for month 25 and beyond.
When the promo ends, Loan Calculator recalculates the payment on the remaining balance at the floating rate, over the months that are left:
Balance after month 24 = $292,404.74
Remaining term = 360 − 24 = 336 months
Rate = 8.5% ÷ 12
Payment from month 25 = $2,284.40In month 25 the interest alone is $2,071.20, so only $213.20 goes to principal, less than the $298.65 of month 1. The payment rises by $485.75, but the interest rises by even more, so you pay more each month while your balance falls more slowly than it did during the promo.
A longer promo softens the reset a little and saves interest, but the jump still comes:
| Promo length | Payment after promo | Total interest |
|---|---|---|
| None (8.5% throughout) | $2,306.74 | $530,426.89 |
| 12 months | $2,295.77 | $520,510.12 |
| 24 months | $2,284.40 | $510,732.06 |
| 36 months | $2,272.64 | $501,088.61 |
| 60 months | $2,247.90 | $482,285.99 |
Going from a 24-month to a 60-month promo saves $28,446.07. One extra point on the floating rate costs $69,394.69, as the next section shows. Over a 30-year loan, the floating rate matters much more than the length of the promo.
With Equal principal the pattern is the same, with a bigger step. The first payment is $2,333.33, it falls to $2,237.50 by month 24, then jumps to $2,816.66 in month 25, which is $579.16 more. Total interest is $369,043.19. See equal payment vs equal principal for how the two methods differ.
3. Stress-test the floating rate
Best for: any floating-rate loan, since nobody knows the rate you will pay in year three.
The If interest rates rise card keeps the promo rate and raises only the floating rate. Its note says: "Promo rate unchanged; the floating rate after the promo is raised by +1, +2 and +3 percentage points. Illustration only, not a forecast."
| Floating rate | Highest payment | Extra interest |
|---|---|---|
| 8.5% (now) | $2,290.46 | — |
| 9.5% | $2,494.25 | $69,394.69 |
| 10.5% | $2,707.83 | $140,745.52 |
| 11.5% | $2,925.99 | $213,799.38 |
The promo payment is $1,798.65 in every row, so all of the risk sits after the promo. At +3 points the payment from month 25 would be about $2,921, over $1,100 more than what you pay today.
Two details about the card. The values are shortened to fit, so $2,494.25 shows as "2.49K". And "Highest payment" includes the final payment, which settles the rounding of all earlier months. That is why the current row shows $2,290.46 rather than the $2,284.40 regular payment.
4. How to model a promo loan in Loan Calculator
Best for: checking a real offer before you sign.
- Enter the Loan amount and the Term.
- Open Advanced options and turn on Promo rate for first months (teaser). The rate field above changes to Promo rate (%/year). Enter the promo rate there, 6 in our example.
- Fill in Promo months (24) and Floating rate after promo (%/year) (8.5). The promo must be shorter than the loan; otherwise the app shows "Promo months must be less than the term".
- Under Interest method, choose Equal payment or Equal principal. Flat rate is not available with a promo rate.
- Tap Calculate. The results show Payment during promo and Payment after promo, with the note "Promo: first 24 months at 6%/year, then 8.5%/year".
- Open Amortization schedule to see the switch at row 25. In the Yearly view, years 1 and 2 total $21,583.80 each and year 3 jumps to $27,412.80. The amortization schedule guide explains each column.
The Interest methods compared card is hidden for promo loans, since it compares methods at a single rate. The method switch on the schedule screen is hidden too. To try the other method, change it on the form and tap Calculate again.
Which promo offer should you choose?
| Situation | What to do |
|---|---|
| You can afford the promo payment but not much more | Budget on the payment after the promo and check the +2 row before signing |
| Two offers with different promo lengths | Compare total interest and the payment after the promo, not the promo payment |
| One offer has a longer promo, another a lower floating rate | The floating rate usually matters more over a long loan; enter both and compare |
| You compare a promo offer with a fixed-rate offer | Enter the fixed offer as a normal loan and compare total interest and the highest payment |
| You plan to refinance when the promo ends | Note the balance after the promo and read refinance break-even |
FAQ
Why does my payment jump when the promo ends?
The promo payment is based on the low rate. When the promo ends, the remaining balance is recalculated at the floating rate over the remaining months. In our example that takes the payment from $1,798.65 to $2,284.40.
Is a longer promo always better?
It saves interest: 60 months instead of 24 saves $28,446.07 here. But the floating rate matters more. A single extra percentage point on the floating rate costs $69,394.69, more than twice that saving.
What floating rate should I enter?
Enter the rate your offer states for after the promo. If it is defined as a reference rate plus a margin, add them up at today's level. Then use the If interest rates rise card to see the +1, +2 and +3 point cases.
Can I use a promo rate with a flat-rate loan?
No. When you turn on the promo rate, Flat rate is disabled and the app switches to Equal payment. You can still choose Equal principal.
Does the stress test change the promo rate too?
No. Only the floating rate is raised. The promo payment stays the same in every row, so the card shows exactly how much extra risk the loan carries after the promo.