What Is a Roll Over Mortgage?

There could be a roll over mortgage on this house.

A roll over mortgage is a type of home loan that is renegotiated or refinanced every few years (usually for a set time period) to current market rates. It has a set fixed-rate term in the beginning, and it is refinanced every time the term is complete.

Significance

A roll over mortgage typically has lower rates than a conventional fixed mortgage during its first few years. The lower rate is to compensate for the risk in the later years.

Function

A roll over mortgage allows the borrower to capitalize on low interest rates, and it gives the lender the opportunity to capitalize on higher interest rates in the future.

Types

A roll over mortgage is fixed for a set term. At the end of the term, the rate is reset or refinanced to a second fixed rate. The full term of the loan can range from 10 to 40 years.

Considerations

Although this type of a mortgage can offer the borrower a low rate in the beginning, there is no cap on how high the rate could go after the initial term. The risk should be a factor in the borrower's decision.

Misconceptions

A roll over mortgage is not an adjustable-rate mortgage. An adjustable-rate mortgage changes every set time period to the market rate. But unlike a roll over mortgage, it has a cap on how high or how low the rate can go.

References

• InvestorWords.com: Roll Over Mortgage
• MortgageCalculator.com: Mortgage Types
• FederalReserve.gov: Looking for the Best Mortgage