Mortgages that put you in charge

NEW YORK (CNNMoney.com) -- There's a new kind of mortgage in town - and it's very limber.

Usually, when borrowers want to restructure their mortgages - go from a fixed-rate to a variable rate, for example - they have to refinance, an onerous, expensive process. There are new closing costs, legal fees and title search and insurance fees that could add thousands of dollars to the mortgage principals.

But the new product from Washington Mutual (Charts, Fortune 500) (WaMu), called Mortgage Plus, gives customers the ability to switch the type of loan they have without going through a refinance.

Say that originally, a family is planning to spend only a few years in their new house - they may choose a low, variable rate loan. They plan to sell the home and move before rate resets to higher one.

But if they decide to stay in town longer, they can switch the terms of their variable-rate Mortgage Plus loan to a fixed rate.

Washington Mutual says the process should take no longer than 15 minutes. Basically, all borrowers have to do is call WaMu or stop into their bank and say they want to switch.

The first reset is free and subsequent ones will usually cost $250 (clients pay no fee ever for moving from a fixed to a variable rate). Changes can be made twice a year.

"It allows you to take advantage of opportunities as they arise," said Steve Rotella, WaMu CEO, in a press release.

All this flexibility comes at a price in the form of higher interest rates. But the Washington Mutual said rates will probably be less than a half percentage point above averages.

With, however, so much focus on the dangers of hybrid ARMs, which are contributing to a big rise in foreclosures this year, can these loans prove problematic?

The bank says it's not likely; consumers should not be able to get into trouble simply by choosing Mortgage Plus. For one thing, it's only available to prime customers, people with solid credit scores. And the company says it will use tough underwriting standards. All approvals will be based on the ability to repay the loans at the highest, fully indexed levels, rather than the lower rates borrowers could be paying.

In addition, there will be no "negative amortization" options - borrowers must at least be paying the interest if not the principal of the loan. And there will be no zero-down payment options.

Don Sprague, a mortgage broker and financial planner whose company, Liberty Financial Services, is in Colorado, believes the loans can be very valuable, especially for fiscally seasoned consumers.

"To be able to switch to a variable rate when they are going down would be very advantageous," he says. "And the more flexibility, the better it is for people ready to enter retirement."

Retiring owners may decide they want to accelerate their mortgage payments, for example, since they will no longer reap tax benefits from mortgage interest.

There also is a home-equity line of credit (HELOC) component. It is accessible any time, although, there has to be a sufficient cushion in the home equity. The loan-to-value ratio - the amount owed compared to actual value of the home - may not exceed 90 percent.

If, for example, a new buyer puts down 20 percent on the house, she would automatically have access to 10 percent of the value of the property as a HELOC. If property values rise, the increase in value is available almost immediately for the owner to draw on.