Renegotiable Rate Mortgage

A renegotiable rate mortgage (RRM) consist of a series of short term loans but fall under the umbrella of a main long term mortgage.

The short term loans usually run for about 3 to 5 years and are lined up with each other so that as soon as one matures, another ones takes over the torch.

The term used to describe this passing of the torch is renegotiate, renew or rollover.

Which explains why it is also known as a rollover mortgage.

Interest rates for the short term loans are fixed rates. And when one matures, the new one might take up an adjusted rate that is a fully indexed rate made up of an index rate and margin.

This means that even though it somewhat behaves like an adjustable rate home loan, the monthly payment amount would be identical through the term of each short term loan.

It is like a hybrid of FRM and ARM.

Once a segment expires and a new one commences, a new installment amount would be calculated based on the new interest rate.

And if a borrower feels that the rates for a new term are too high, he can weigh up the options available for refinance and be subjected to any prepayment penalty fees stipulated in the contract.

It can sometimes be present in a contract as a renegotiable rate clause.