1205.01

Replacement Interest Rate Cap

Requirements

If the initial Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. expires before the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. of the SARM Loan, you must ensure that:

  • The BorrowerBorrowerPerson who is the obligor per the Note. purchases a replacement Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. to cover the remaining term.
  • The notional amount of any replacement cap equals the outstanding principal balance of the SARM Loan when the replacement cap becomes effective, and continues throughout the term of the replacement cap.
  • The term of the replacement cap equals the remaining term of the SARM Loan, or a shorter term if previously approved and documented in the Loan DocumentsLoan DocumentsAll Fannie Mae-approved documents evidencing, securing, or guaranteeing the Mortgage Loan. .
  • The Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. of the replacement cap is equal to or less than the Cap Strike RateCap Strike RateMaximum specified Index interest rate that will trigger a payment obligation by the Interest Rate Cap provider. at Mortgage LoanMortgage LoanMortgage debt obligation evidenced, or when made will be evidenced, by the Loan Documents, or  a mortgage debt obligation with a Fannie Mae credit enhancement. origination (see Part III, Chapter 12: Structured Adjustable Rate Mortgage (SARM) Loans, Section 1205.02: Determining the Cap Strike Rate).

Guidance

The BorrowerBorrowerPerson who is the obligor per the Note. may purchase an Interest Rate CapInterest Rate CapInterest rate agreement between the Borrower and a provider for which the Borrower receives payments at the end of each period when the interest rate exceeds the Cap Strike Rate.  The Interest Rate Cap provides a ceiling (or cap) on the Borrower's Mortgage Loan interest payments. in advance if

  • the initial cap goes into effect on the Mortgage Loan Origination DateMortgage Loan Origination DateDate you fund a Mortgage Loan to the Borrower. , and
  • the replacement cap goes into effect on the Maturity DateMaturity DateDate all Mortgage Loan amounts become fully due and payable per the Loan Documents. of the initial cap.