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 Freddie Mac Float-to-Fixed-to-Float Option
Freddie Mac offers a Float-to-Fixed-to-Float Option for newly originated mortgages. Borrowers who choose this option may be able to take advantage of low short-term floating rates to maximize cash flows early on and lock in a fixed rate for the remainder of the term up front in order to eliminate the risk of rising rates in the future. The Float-to-Fixed-to-Float Option will have an initial one- or two-year period at a floating-rate based on the yield of the one-month Freddie Mac Reference Bill® index. This will be followed by a fixed-rate period that will be priced based on the yield on the Treasury security selected by Freddie Mac with a maturity similar to the combined initial floating-rate and fixed-rate periods. The spread on the initial floating-rate period and the interest rate for the fixed-rate period will be locked at early rate-lock application or commitment. Yield maintenance will apply for the initial floating and fixed-rate periods of the mortgage, with the matching maturity Treasury described above serving as the reference security. The conversion from float to fixed and back to float will be automatic; re-underwriting will not be required. Underwriting parameters of the appropriate product apply. At the end of the fixed-rate period, borrowers can extend their loan term for one year, at which time the mortgage rate will automatically convert to a floating rate equal to 250 basis points (gross) over the one-month Freddie Mac Reference Bill index.
General GuidelinesEligible Mortgage Products
Underwriting RateThe fixed interest-rate Servicing FeeThe servicing fee remains the same for the entire term of the loan AmortizationAmortizing, Partial Interest-Only, or Interest-Only Conversion
Other Terms and Conditions
Guidelines for Initial Floating-Rate PeriodFloating-Rate Term1 or 2 years Prepayment ProvisionsPrepayable in full, subject to yield maintenance premium based on the combined initial floating-rate period and fixed-rate period and the fixed note rate Pricing
Interest-Rate CapNot required Transfers/AssumptionsPermitted with Freddie Mac’s approval Guidelines for Fixed-Rate PeriodLoan Term
Prepayment ProvisionsPrepayable in full, subject to yield maintenance premium based on the combined initial floating-rate period and fixed-rate period and the fixed note rate. Pricing
Transfers/AssumptionsPermitted with Freddie Mac’s approval Guidelines for Final Floating-Rate PeriodLoan Term1 year after fixed-rate period Prepayment ProvisionsPrepayable at par PricingGross spread of 250 basis points over the 1-month Freddie Mac Reference Bill index Interest-Rate CapNot required Transfers/AssumptionsNot permitted Summary of Float-to-Fixed-to-Float Available Term Structures
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