Real Estate Terms Glossary
What is a Convertible ARM?
A convertible adjustable rate mortgage (ARM) is an ARM that borrowers can convert to a fixed-rate mortgage at a later late under specified conditions. It is done at an interest rate computed according to a formula mentioned in the contract. Note that the financial institutions, such as banks, usually charge a fee to convert or switch the ARM to a fixed-rate mortgage.
And in some cases, it is possible to adjust the remaining loan balance or loan term in order to reflect the interest rate change. Keep in mind that the main purpose of these programs is to allow mortgage interest rates to fluctuate or change with market conditions.
Read more about what’s included in a mortgage note .
Examples of Convertible ARMs
- Example 1: a convertible ARM with an option to convert after 10 years.
Here’s Investopedia’s definition of a convertible ARM .
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