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Freddie Introduces New 'Float-to-Fixed'

Freddie Mac has introduced a "float-to-fixed-to-float" option for multifamily mortgage lenders.

This feature will enable borrowers to get higher cash flows from their properties earlier in the life of a mortgage, by taking advantage of low short-term floating rates, according to the government-sponsored enterprise.

As well, the borrower could get a fixed rate up front for the rest of the mortgage term, which will serve to eliminate the risk of taking on an exposure to rising rates.

And up to an additional year of floating-rate debt could be used at the end of the loan term to "arrange an exit strategy."

During the initial floating rate period, which is one or two years at the beginning of the mortgage term, the rate is based on the one-month Freddie Mac reference bill index.

For the fixed portion of the term, the rate of interest is based on Treasury securities that have a similar maturity profile to the combined initial floating-rate and fixed-rate periods.

The GSE has also introduced additional prepayment options to its capped and standard ARM products.

With these options, borrowers could get a lower spread over the applicable index, for mortgages paid off before they mature or convert to a fixed rate, in exchange for a higher prepayment premium and a longer prepayment period.

Freddie Mac said the three prepayment structures offer flexibility.

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