By definition, a rollover mortgage is a mortgage wherein the pending or the outstanding balance is required to be refinanced after every few years at the interest rates that were prevailing back then. A rollover mortgage enables the issuer to earn more money than they would on a regular mortgage. They are issued with a view to earning immediate income or for saving taxes. A rollover mortgage is a great way to reduce the risk for the seller or the issuer of the mortgage.

Interest rates
The rate of interest is fixed and predetermined. It cannot be increased after a certain percentage. So, the interest rate on a rollover mortgage can begin at 0.5% but cannot be increased more than 5%. The interest rates are usually designed to remain in the favor of the seller. There is no cap on the interest rates. It is usually riskier for the one who borrows the rollover mortgage.

Tenure
Our usual mortgages can last up to 35 years unlike in the case of Canada, where the maximum period of a loan is 25 to 30 years only. Several lenders also offer a mortgage that can last up to 40 years but not all lenders provide such a long extension.

In the case of a rollover mortgage, the maximum period for repayment of the loan is around 30 years. It may or may not exceed over the said period of years.  

You Might Also Like:  5 Things To Do After You Pay Off Your Mortgage

Low monthly payments
Unlike other mortgages, the borrower is required to pay low monthly installments for a rollover mortgage. Since the risk involved is higher for the borrower and lower for the issuer, this type of an arrangement is mandatory in order to have a fair agreement. So, if you were wondering why someone would opt for a rollover mortgage knowing the risk involved is higher for them, here is your answer.

Payment shock
Payment shock is a financial term used to describe a situation wherein the borrower of the mortgage may face unforeseen interest rates. Since it is heavily dependent on the market conditions, a rollover mortgage can have various ups and downs in the payment structure. This makes it very difficult for the borrower to track the repayments or even keep a check on them.

Interest rates can make or break
As mentioned earlier, a rollover mortgage is a reflection of the current market scenario. If the interest rates are high, the borrower will be liable to pay more interest along with the actual value of the premium but if the interest rate crashes, the borrower will enjoy the privilege of paying a lower premium amount. There is a high level of uncertainty in this type of mortgage. It is more beneficial to the seller than the borrower. Therefore, it can be said that the interest rates levied on the rollover mortgages can either make or break you.

Keep yourself updated with the latest on  Mortgage . Like us on  Facebook  and follow us on  Twitter  for more on Investments.