Extendable Mortgage
An extendable mortgage appears at first glance to be an adjustable rate mortgage but an extendable is really a balloon mortgage with a provision to refinance as long as the borrower is in good standing (maintained good payment history, no additional liens on property). An extendable mortgage will commonly have a low fixed rate for the first 5 or 7 years with a provision to refinance to either a fixed rate mortgage or adjustable for the remainder of the term. If the borrower has not maintained a good on-time payment history, rather than automatically reseting at the end of the initial fixed rate period, a ballon payment may be due from the borrower.
Conditional Refinance
The option to refinance is conditional. To be eligible for the refinance option, you must meet certain conditions (such as a history of timely payments or no second liens on your property). Conditions may vary but typically include payment by the borrower of closing costs and a lender fee, as well as no 30-day late payments in the previous 12 months and no other liens on your property.) You must occupy your property at the time of refinancing. You need not re-qualify for this loan when refinancing at the end of the initial term as long as the new interest rate is not more than five percent above the current interest rate.
Remember, the refinance condition is not automatic -- you must exercise the option.
Extendable Mortgage Features:
- An extendable mortgage is ideal if you plan to sell or refinance your home within the initial fixed rate period and want a low monthly payment during that time.
- The interest rate you pay during the initial fixed rate period mortgage is usually less than a comparable 30-year fixed-rate mortgage.
- The refinance option provides a "safety net" in case a planned relocation doesn't take place or economic conditions prevent you from moving to a larger home.