 Sam
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Joined: 21 May 2005
Posts: 281
Location: CALIFORNIA
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 Posted: Sat Apr 03, 2004 3:48 am Post subject: Rate Improvement Mortgage |
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Rate improvement mortgage is a fixed rate mortgage that includes a clause allowing the borrower to pay off the loan at a reduced interest rate. The borrower can lower the rate only once without opting for a refinance for the first few years of the loan period. The rate improvement is mostly allowed at the beginning of the mortgage.
Improving the rate is not similar to refinancing which involves the payment of an existing mortgage from the proceeds of a new loan. The new mortgage offers either a reduced interest rate or an extended loan period. Improving the rates may not require any kind of fee. But refinancing requires closing costs including loan processing fees, appraisal fee, etc.
Example: Andy takes a fixed rate mortgage worth $600,000 for 12 years at 5% interest rate. The lender allows her a lower rate of 3% during the first 5 years of the loan period. Such a kind of mortgage is known as the rate improvement mortgage. |
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