The Bank of America announced that it plans to introduce in California early next year a new type of variable rate home mortgage loan that is similar to the five-year rollover mortgage used in Canada.
The new mortgage is authorized by recently signed state legislation that allows mortgage lenders in California to offer experimental kinds of home loan financing beginning Jan. 1, 1978.
Unlike the presently-offered variable rate mortgage, on which the interest rate can be changed as frequently as every six months, the bank said, the five-year variable rate loans will be made at fixed interest rates for five years and automatically reviewed for possible rate changes at the end of the fifth year.
Rate changes will be tied to a pre-determined index reflecting the prevailing cost of real estate funds in the market. At the time of the five-year rate reviews the customer will have the option of accepting the new rate if a change is called for or paying off the loan without penalty.
If a rate increase is necessary the borrower has the option of keeping the monthly payment the same by extending the maturity on the loan from the usual 30 years up to a maximum of 40 years.
The bank said it plans to offer the five-year variable rate loan with an initial interest rate lower than that on its fixed-rate loans.
Bank of America, along with other banks and savings and loan associations in the state, has been offering variable rate mortgages since last year with the interest rate pegged to a cost-of-money index. However, since the bank began offering these kinds of loans in October, 1976, the index hasn't changed enough to trigger any interest rate changes.