Rollover Mortgage

Rollover Mortgage Explained

A rollover mortgage is a loan to cover the unpaid balance, or outstanding principal,that  must be refinanced at current interest rates. This refinancing process happens every three to five years on average. The interest rate would be fixed until the renegotiation point. The first fixed interest rate is typically lower than a traditional fixed-rate mortgage.

Rollover Mortgage Process

The initial mortgage contract would spell out the exact terms and limits of the loan when agreeing on a rollover mortgage. It may, for example, state that the mortgage interest rate cannot rise more than 0.5 percent per year or more than 5% throughout the life of the loan. A rollover mortgage typically has a 30-year term.

A renegotiable-rate mortgage is another name for a rollover mortgage. A rollover mortgage is designed to lessen the mortgage lender’s interest-rate risk by transferring part of it on to the borrower. Variable-rate mortgages serve the same function.

A hybrid mortgage is not the same as a rollover mortgage. A hybrid mortgage has a fixed interest rate at first, but the loan converts to an adjustable-rate mortgage at a predetermined point, with the rate varying every year for the remainder of the loan’s duration.

Rollover Mortgages can be a good option for some borrowers

Borrowers may have to pay more on their mortgage if interest rates rise, which in many circumstances will be an expense they cannot afford. They may have to default on their mortgage or sell their home as a result. Not knowing what your future mortgage rates will be is a risky venture that can lead to financial instability.

As a result, a rollover mortgage is best for people who don’t plan on staying in their house for the duration of the loan but plan to sell before it expires.

Some people wrongly believe that a rollover mortgage allows the balance or remaining principle to be rolled over into the starting balance of an entirely new and independent loan.

Benefits of a Rollover Mortgage

A rollover mortgage benefits who the most? That is dependent on current interest rate movements. When interest rates are low, this form of loan favors the borrower; but, when rates are high, it hurts the borrower and benefits the lender more.

• A rollover mortgage is a form of loan that includes varying interest rates at different stages in the repayment process.
• The initial interest rate is usually lower than a regular fixed-rate mortgage, but the unpaid debt is refinanced every three to five years or so, depending on current interest rates.
• If interest rates fall, the borrower gains from renegotiating a lower rate, whereas the lender benefits from renegotiating a higher rate if interest rates rise.