What Is a Convertible Mortgage?
Most consumers borrow a mortgage loan to purchase a home. There are several types of mortgage loans, each with different terms. A convertible mortgage is one of the choices.
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Features
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A convertible mortgage is one that you can convert from an adjustable-rate mortgage to a fixed-rate mortgage. Not all adjustable-rate mortgages can be converted.
ARMs and FRMs
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An adjustable-rate mortgage, or ARM, is one with an interest rate that fluctuates over time. A fixed-rate mortgage, or FRM, keeps the same interest rate for the life of the loan.
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Considerations
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If you choose to convert your mortgage, you might have to pay a fee at the time of conversion.
Costs
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Convertible mortgages can have a higher interest rate or an upfront fee, or both, simply for the option of converting at a later date.
Benefits
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A convertible mortgage allows the homeowner to take advantage of a rising adjustable interest rate or falling fixed-rate mortgage without having to refinance the loan.
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