DEFINITION of 'Rollover Mortgage'

A mortgage in which the unpaid balance (outstanding principal) must be refinanced every few years (often three to five) at current interest rates, subject to certain limits. For example, the mortgage interest rate may not increase by more than 0.5% per year or by more than 5.0% over the life of the loan. The life of a rollover mortgage is commonly 30 years.

BREAKING DOWN 'Rollover Mortgage'

The purpose of a rollover mortgage is to reduce the mortgage lender's interest-rate risk by passing some of that risk on to the borrower (variable-rate mortgages have a similar purpose). When interest rates are falling, this type of loan benefits the borrower, but when they are rising, it can harm the borrower. An example of a rollover mortgage is the Canadian rollover mortgage, which is a common type of renegotiable-rate mortgage in Canada.

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