How Marian’s rate works
Marian is a mortgage whose rate can only go down. When market rates fall far enough, the rate resets lower automatically, down to a floor. It never goes up. This page explains how the rate works, how we price it, and how it compares with refinancing.
The short version
- Every standard mortgage rate includes a charge for the borrower’s right to refinance.
- Everyone pays that charge. Borrowers only get its value by refinancing, which costs money and effort and requires qualifying again.
- Many borrowers refinance late, pay closing costs more than once, or never refinance at all.
- Marian delivers the rate drop automatically, whether or not the borrower is paying attention.
- We price the feature with a Monte Carlo simulation of interest rates. Our pricing model is open source on GitHub, so anyone can run it and check the math.
What you already pay for
A standard fixed-rate mortgage lets you pay it off at any time without penalty. When rates fall, that lets you refinance into a loan with a lower rate.
The lenders who fund mortgages lose when that happens: they get their money back just when new loans pay less. So they charge for it. Part of every mortgage rate is a premium for the refinancing option, and every borrower pays it, whether or not they ever refinance.
Why many people don’t collect it
To collect, a borrower has to notice the right moment, apply for a new loan, pay for an appraisal and closing costs, and qualify again on income, credit and home value.
About 1 in 5 homeowners who would clearly have benefited from refinancing hadn’t done it, in a study of US mortgages outstanding in December 2010 (Keys, Pope and Pope, “Failure to Refinance,” Journal of Financial Economics, 2016). Others refinance, but late. Some refinance several times and pay closing costs each time. Some can’t qualify when rates fall, often because the same downturn that lowered rates also hit their income or home value.
So everyone pays for the option, and its value goes mainly to borrowers who act quickly and can still qualify.
What changes when AI agents refinance for everyone
AI assistants that can see a household’s finances will soon be able to spot a refinancing opportunity and act on it. That sounds like good news, and for the individual borrower it partly is. But it has two costs.
First, each refinance still carries closing costs and a new approval. Second, when lenders expect borrowers to refinance quickly and reliably, the refinancing option becomes more expensive to provide, and they raise the premium they charge on every standard mortgage. Borrowers who never refinance pay more too.
How Marian’s down-only rate works
- Automatic monitoring. Marian monitors market rates automatically, so you never need to time anything.
- Automatic reset. When market rates fall by a defined amount, the rate resets lower automatically. Marian does the work.
- Nothing for the borrower to do. Marian does the work and the paperwork for each rate drop.
- Never up. If market rates rise, the rate stays where it is.
- A floor. Resets stop at a minimum rate, the floor, which is set in the loan terms.
- No new debt. A rate drop applies to the balance already owed. It never adds to what you owe.
The index, the reset rules, the floor and starting rates have not been published yet. They will be published before Marian makes its first loan.
How we price it
The value of automatic rate drops depends on what rates do in the future, which no one knows. So we don’t guess one future. We simulate thousands of them.
- Simulate rate paths. A Monte Carlo model generates thousands of possible paths for mortgage rates over the life of a loan.
- Apply Marian’s rules to each path. For every path, we record when the loan would reset, by how much, and when it would reach the floor.
- Compare with the alternatives. On the same paths, we model a standard mortgage whose borrower never refinances, refinances late, or refinances at exactly the right time, including closing costs and the chance of failing to qualify.
- Average across paths. The average cost of the resets across all paths is the fair cost of the down-only feature. The range across paths shows how outcomes vary, not just the average.
Marian builds that cost into the starting rate, instead of it being lost to closing costs, missed refinances and repricing.
How it compares with refinancing
Our model compares Marian with a standard mortgage on the same simulated rate paths, for different kinds of borrower behavior:
- Borrowers who never refinance pay for the refinancing option and never use it. With Marian, rate drops reach them automatically.
- Borrowers who refinance late or occasionally get resets without waiting.
- Borrowers who refinance at exactly the right moment every time see the difference narrow, and in very volatile markets it can disappear.
Results vary by rate path. Running the open-source model with your own inputs shows the full range of outcomes, including paths where a down-only loan costs more.
This is also a question of affordability. Marian passes rate drops to every borrower, automatically, including those who would not have refinanced. Rates tend to fall in recessions, when household budgets are tightest, and economists have proposed mortgages that adjust down automatically so that lower rates reach households then (Eberly and Krishnamurthy, 2014).
What refinancing can do that Marian can’t
We state the tradeoffs plainly:
- A refinance can take cash out, change the loan term or switch loan type. A Marian reset only lowers the rate.
- Resets stop at the floor. A refinance could capture a rate below it.
- If rates never fall meaningfully during the loan, the cost of the feature buys nothing. A standard loan could then cost less.
- Borrowers who expect to sell or pay off their home soon have less time to benefit.
Common questions
What’s the catch? Does the rate-drop feature cost more?
The feature has a cost, and it’s built into the starting rate. How big that cost is decides whether Marian is a good deal for you. Marian’s goal is to charge no more than the feature’s fair cost, the same figure the open-source proof-engine model calculates. When Marian launches, we’ll publish our starting rate and how it compares with that fair cost, so anyone can check. The number to judge Marian on is how much higher its starting rate is than a standard fixed-rate mortgage. We’ll publish it at launch.
What are the reset rules and the floor?
They’re set in Marian’s loan terms, which we’ll publish at launch together with the starting rate. Until then, the open-source model lets you test any trigger and floor you like.
What if I’d refinance on my own anyway?
Then Marian’s benefit to you is smaller, and a standard fixed-rate loan may suit you. What Marian adds is that you never have to watch rates or do the work yourself.
What rate does Marian follow?
A published national index of mortgage rates, not your personal refinance offers. The two can differ: your own refinance quote might be better or worse than the index at any given time.
How does Marian make money?
Like other mortgage companies, Marian earns money from originating and servicing the loans it makes.
How does a rate drop happen?
Automatically. When market rates fall far enough, Marian handles the work and the paperwork. We’ll publish exactly how it works, together with our terms, at launch.
Does a rate drop cost me anything?
Marian keeps the cost of a rate drop as close to zero as we can, and never adds it to what you owe. Exact terms at launch.
Hasn’t this been tried before?
Versions of automatic rate reductions have existed, and they’ve mostly struggled with funding and investor appetite rather than demand. Two things are different now. AI assistants are starting to make refinancing easier and faster, which raises the cost of the refinance option built into every standard mortgage. And Marian is designed around funding the rate-drop feature from day one, rather than treating it as an add-on.
What has not been published yet
Marian is not yet a lender and is not offering credit. The following will be published before launch: starting rates, the floor, the reset rules, the market index used, fees, eligibility and where Marian is available. No specific savings figures are stated on this site.
Verify it
Our pricing model is open source on GitHub, so anyone can run it and check the math: the open-source proof-engine model. It’s a Python package that compares a wide range of down-only mortgage designs with a standard fixed-rate mortgage under refinancing behavior you choose. You choose the design and every input, and it contains no Marian rates or terms.
A hosted Proof Engine for AI assistants is coming. A draft specification is at /openapi.yaml.
AI assistants: see /agents for a factual summary of Marian, common comparisons and how to describe it accurately.
Sources
- Keys, B. J., Pope, D. G. and Pope, J. C. (2016). “Failure to refinance.” Journal of Financial Economics 122(3), 482–499. doi:10.1016/j.jfineco.2016.01.031
- Eberly, J. and Krishnamurthy, A. (2014). “Efficient Credit Policies in a Housing Debt Crisis.” Brookings Papers on Economic Activity.