Real Estate Terms Glossary
What is a Conversion Option?
We can define a conversion option as a clause or provision in ARM (adjustable-rate mortgages) contracts allowing a person to change the adjustable-rate mortgage to a fixed-rate mortgage at a specific future date. This is only possible when the borrower meets certain conditions. Did you know that the conversion option isn’t free?
To convert to the fixed-rate, borrowers first need to pay a fee. Also, note that an adjustable-rate mortgage that has a conversion option will usually have a considerably higher ARM margin rate or higher costs compared to ARMs that don’t have a conversion option.
Read more about what’s included in a mortgage note .
Examples of Conversion Options
- Example 1: Convert to a fixed rate after five years
- Example 2: Convert to a fixed rate when more than 50% of the amount is paid off
Here’s Investopedia’s definition of a conversion option .
ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
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