Any lender may make, purchase or participate in a renegotiable rate mortgage loan under this section if the loan complies with the provisions of this section pertaining to one- to four-family home loans. (a) For purposes of this section, a renegotiable rate mortgage loan is a loan issued for a term of three, four or five years, secured by a long-term mortgage or deed of trust of up to 30 years, and automatically renewable at equal intervals except as provided in paragraph (1) of subdivision (b). The loan must be repayable in equal monthly installments of principal and interest during the loan term, in an amount at least sufficient to amortize a loan with the same principal and at the same interest rate over the remaining term of the mortgage or deed of trust. Only one of the indices described in paragraph (1) of subdivision (b) shall be used and no other index shall be used during the term of the mortgage or deed of trust securing the loan. At renewal, no change other than in the interest rate may be made in the terms or conditions of the initial loan. Prepayment in full or in part of the loan balance secured by the mortgage or deed of trust may be made without penalty at any time after the beginning of the minimum notice period for the first renewal, or at any earlier time specified in the loan contract. (b) Interest rate changes at renewal shall be determined as follows: (1) Subject to the provisions of subdivision (a) the interest rate offered at renewal shall reflect the movement, in reference to the date of the original loan, of an index, which may be either (i) the contract interest rate on the purchase of previously occupied homes in the most recent monthly national average mortgage rate index for all major lenders published by the Federal Home Loan Bank Board, or (ii) the weighted average cost of funds for the 11th District Savings and Loan Associations as computed by the Federal Home Loan Bank of San Francisco; provided that a lender may extend the initial terms of loans for a period less than six months so that they may mature on the same date three, four or five years after the end of such period of extension, in which case the interest rate offered at renewal shall reflect the movement of the index from the end of such period so that loans may be grouped as though all loans of such group had originated at the end of the extension period. (2) The maximum rate increase or decrease shall be 1 2 of 1 percentage point per year multiplied by the number of years in the loan term, with a maximum increase or decrease of 5 percentage points over the life of the mortgage or deed of trust. The lender may offer a borrower a renegotiable rate mortgage loan with maximum annual and total interest rate decreases smaller than the maximum set out in this paragraph, except that in such a case the maximum annual and total interest rate increases offered shall not exceed the maximum annual and total decreases set out in the loan contract. (3) Interest rate decreases from the previous loan term shall be mandatory. Interest rate increases are optional with the lender, but the lender may obligate itself to a third party to take the maximum increase permitted by this paragraph. (c) The borrower may not be charged any costs or fees in connection with the renewal of such loan. (d) At least 90 days before the due date of the loan, the lender shall send written notification in the following form to the borrower: NOTICE Your loan with [name of lender], secured by a [mortgage/deed of trust] on property located at [address], is due and payable on [90 days from the date of notice]. If you do not pay by that date, your loan will be renewed automatically for ____ years, upon the same terms and conditions as the current loan, except that the interest rate will be ____%. (See accompanying Truth-In-Lending statement for further credit information.) Your monthly payment, based on that rate, will be $____, beginning with the payment due on ____, 19_. You
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