First Chicago National Bank is offering an adjustable-rate mortgage designed to avoid refinancing costs and hold on to customers when interest rates are low.
The First Flexible Mortgage, available only to Chicago-area customers, will allow new mortgage customers three options to reduce costs.
Chicago's fragmented market for retail banking, with leading market shares only in the single digits, makes it imperative that the bank retain core customer groups, the company said.
With $1 billion in Chicago-area mortgages expected for 1995, First Chicago Mortgage Services holds about 6% of market share for the area, making it No. 2.
"The First Flexible Mortgage suits conservative Chicago-area consumers well because it assures them that their payment will stay the same - or go down - for the first five years," said Jack Eastman, a vice president at First Chicago Mortgage Services, in a written statement.
The mortgage begins as a typical 5-1 adjustable-rate mortgage, with the initial interest rate set for five years.
The first rate-change option, reduction during the first five years, allows customers to reduce the mortgage rate during the first two years if rates fall 0.75 percentage point. After the first two years, rates only need fall 0.35 percentage point for consumers to be able to trim their rate. First Chicago charges a $500 fee to customers who exercise this option - significantly lower than the $1,000-to-$1,500 cost of a typical average refinancing, according to a First Chicago spokesman.
The new rate will remain in effect for the rest of the first five years, or until the consumer chooses a lower rate following another significant drop in rates.
The second option allows customers to convert the ARM to a fixed-rate mortgage after the first two years, with a fixed conversion fee of $250. The fixed rate will reflect the Fannie Mae 60-day rate plus 0.25 percentage point (or 0.50 percentage point for loans in excess of $202,350).
Customers can also choose between a one-year or five-year period for rate adjustment after the first five years.
First Chicago will complete a merger with NBD Bancorp by the end of this year, and plans to apply the First Flexible Mortgage beyond the Chicago area are "still not clear," according to a First Chicago spokesman.
