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A convertible mortgage starts out as an adjustable rate mortgage, or ARM. After a specified amount of time, you have the option to convert the ARM to a fixed rate. There is a fee if you decide to do this conversion. If you leave the loan as an ARM, you do not have to pay a conversion fee. Many borrowers use a convertible mortgage when they think rates will come down in the future.
Convertible Mortgage Benefits
You will use a convertible mortgage when you think that rates will drop in the future. If you are correct, you do not have to go through the costly process of refinancing your loan to obtain the lower rate. You only have to pay the conversion fee to switch from the ARM rate to a fixed mortgage rate.
If you are considering selling your home in the future, a convertible mortgage may be right for you. If you sell your home, you saved money by having a lower payment. If you do not sell your home, you can always convert to the fixed rate at any time during your repayment period. In this way, a convertible mortgage will also benefit you if you decide against selling.
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