Answer: The starting rate (called a teaser rate) is usually about 2% less than the standard fixed conventional rate. Adjustable rate mortgages are tied to financial indexes or benchmarks that are computed on a particular index and a margin.
Example: If the index level is at 5% and the margin is at 2%, the total rate will be 7%. If the index level rises to 6%, the margin stays the same and the total rate goes up to 8%.