Rate-improvement Mortgage Definition

A rate-improvement mortgage is a mortgage with a special clause allowing the borrower to make a single adjustment to the interest rate of the loan. When exercised, this option sets the mortgage interest rate to a specified market index-obviously it is only exercised after the interest rates have dropped appreciably.

Rate-improvement mortgages must usually be altered within an initial short-term period, often a few years from the origination date. Exercising the rate-improvement option almost always carries a hefty fee, though the fee is designed to cost less than the costs associated with refinancing.