Renegotiable Rate Mortgage

The renegotiable rate mortgage is another type of variable rate mortgage that was approved by the Federal Home Loan Bank Board. This mortgage is amortized over 30 years but must be renewed at 3, 4, or 5 year intervals. At renewal time, the interest rate can be increased no more than 1/2 of 1% for each year of the initial term. Thus on a three-year  renegotiable rate, the maximum rate adjustment allowed is 1 1/2%. On a five-year term it is 2 1/2%. There is a 5% limit on upward adjustments during the life of the loan. Downward adjustments must be made if the lender's borrowing costs decline. 

Rules regarding variable rate mortgage also were changed when it became apparent that they were not flexible enough to keep pace with rapidly rising interest rates. As a result, banks can now make variable rate mortgages that may be adjusted by as much as 1% every six months with no cap on how much the rate can rise over the life of the loan. The borrower must be given 30 days advance notice of any change in rate and the opportunity to repay the loan early without penalty.

Renegotiable Rate Mortgage to Home Financing