Reduction-Option Loan

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Reduction-Option Loan (ROL)

A hybrid of a fixed-rate and adjustable-rate mortgage. An ROL matches the borrower to the current mortgage rate, which then becomes fixed for the rest of the term. This reduction is usually allowed if rates drop more than 2% in a year.

A mortgage loan that combines aspects of fixed-rate and adjustable-rate mortgages. A reduction-option loan is a fixed-rate mortgage, but the rate may drop if prevailing interest rates drop more than a certain amount in a year. Usually, this reduction must be 2% or more. If that happens, the new, lower interest rate becomes the interest rate for the remainder of the mortgage.

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