Merrill Lynch Credit Corporation (MLCC) announced last week the launching of the blended-rate mortgage. This is an ARM product that offers the lower rate of an adjustable-rate mortgage (ARM) with the lower risk of fixed-rate loans. Although the product allows borrowers to make interest-only payments during the initial period, it also gives them the flexibility of paying principal at any time without penalty.
According to a release from the company, the new product helps diversify interest-rate risk by blending a fixed-rate and an adjustable-rate type product, with initial reset periods of 3, 5, or 7 years. And as interest rates fluctuate, the amount the blended rate will adjust going up or down is minimized relative to a traditional ARM, increasing or decreasing by half. This offers borrowers more protection from rising interest rates.