How to Get a Reducing Interest Mortgage (RIM)
What it is
| At a Glance | |
|---|---|
| Loan Type: | Mortgage |
| Lender: | Bank |
| Secured: | Yes |
A reducing interest mortgage (RIM), also referred to as a convertible mortgage or a reduction option loan, is a short term mortgage that can at any time be converted into a longer term closed mortgage without penalty. The reducing interest loan is similar to a balloon mortgage and allows borrowers to start off with a low variable rate and then converts to a fixed rate before a designated period of time. The conversion is done for a moderate fee and the new conversion rate, although competitive, is higher than the market rate.
These adjustable rate mortgages are used when the interest rate is unusually high so that borrowers can qualify for a mortgage and be able to switch to a lower interest rate without refinancing. Borrowers will want to lock in if the interest rate begins to rise. A reduced interest loan can also come as a fixed rate loan with an option to convert if the market interest rates drop since the time of purchase, which allows the borrower to lock in at an even lower interest rate before a specified period of time.
Who it's for
Reduced interest mortgages have the advantages of both fixed rate and adjustable rate mortgages. These loans are good for individuals who buy homes when interest rates are particularly high, allowing new homeowners to qualify for a mortgage and switch to a lower interest rate later on without refinancing. Reducing interest loans require a lump sum payment of the remaining balance and borrowers may not qualify for refinancing later on.
What you need to do to apply
In order to obtain a reducing interest mortgage, interested applicants will need to contact a local lending institution and inquire about the different options and rates available. Personal and financial history, including a credit report, will need to be made available to the lending institution. A property appraisal may also be required.