By the Division of Banks

Revising A Mortgage Loan From A Fixed To An Adjustable Rate

Under Mass. Gen. Laws chapter 183 § 63A, a mortgagee may, at the request of the owner of the equity of redemption in the property, revise the rate of interest on the mortgage loan, extend the term of the loan, or change the amount of periodic payments of principal or interest or both, on an existing mortgage note on an owner-occupied 1-4 family residence located in the Commonwealth, provided that the interest rate on any such note and mortgage, after any such revision does not exceed the interest rate on the existing note and mortgage. It is the position of the Division of Banks that the statutory limitation on the revised interest rate refers to the initial interest rate after the revision, and not a potential future interest rate in the case of an adjustable rate note. The revision of terms occurs at the request of the borrower and such borrower would assume the risk of future increases in the interest rate if an adjustable rate note is chosen. However, the Division would view any form of a teaser rate which would automatically exceed the interest rate of the existing note and mortgage after a short period of time, or similar action, as a circumvention of the statute.