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LESSON 4

What is a variable rate mortagage ?

The Variable rate Mortagage ( VRM ) is a form of home financing which uses a flexible interest rate that increases or decreases as it seeks the level of a carefully monitoried index. The index used by the Brookline Savings Bank is the Federal Home Loan Bank Board'd " Conventional Home Mortagage Closing Rates, All Lenders/ All Homes ( U. S. Effective Rate ) " as most recently published in the FHLBB First District Facts, rounded to the nearest 1/4 . The FHLBB rate is specifically recommended as the basis for an index by the Massachusetts Commissioner of Banks.
Because the cost of money a savings bank lends to you changes with the rate of interest it pays its depositors, the VRM is anequitable menthod of financing for both home buyers and lenders. VRMs hlp to assure a continous flow of money to home finaning, by better enabling the bank to pay a competitive interest rate to depositors for the money it lends.


1. What index does the brookline savings bank use to determine current mortagage rates?
* The index used by the Brookline Savings Bank is the Federal Home Loan Bank Board'd " Conventional Home Mortagage Closing Rates, All Lenders/ All Homes ( U. S. Effective Rate ) " as most recently published in the FHLBB First District Facts, rounded to the nearest 1/4 . The FHLBB rate is specifically recommended as the basis for an index by the Massachusetts Commissioner of Banks.

2. What causes changes in the cost of money that a savings bank lends ?
* VRMs hlp to assure a continous flow of money to home finaning, by better enabling the bank to pay a competitive interest rate to depositors for the money it lends.

3. How long is the quaranteed rate period ?
* After n initial guaranteed rate period, ranging from six month to five years

4. By how much may the bank increase your mortagage rate ?
* If the index is 1/4 % or more above your mortagage rate, an increase may be made at the option of the bank

5. Must the bank increase your mortagage rate if the FHLBB rate increases? if it decreases ?
* If the index is 1/4 % or more below your mortagage rate, your mortagage rate must be decreased by the bank

6. Is there any limmit to how high your rate can go over th life of the mortagage ?
* Only one rate change is permited every six months and it cannot be for more than 1/4 of 1 %. there is, however a limit to ow high or low your rate can go over an extended period of time

7. When does the bank inform the morgagor about changes in his or her mortagage rate ?
* After your initial guaranteed rate period, your mortagage rate will be reviewed every six month.

8. Study the example of the $50,000 loan.
a. What was a initial rate ?
b. How many increases were there over these five years?
c. How many descreases?
d. How much did monthly payments rise over the five years?