Convertible Mortgage Loans
Similar to a
Balloon Mortgage, Convertible Mortgage Loans
allow you to start off with a low variable rate and then ‘convert’ to a fixed
rate before a designated period of time. The conversion is done for a moderate
fee, and while the new conversion rate is competitive, it is typically a
little higher than the market rate.
Typically, these ARM Loans are used when the interest
rate is unusually high so that borrowers can qualify for a mortgage but still
be able to switch to a lower interest rate later without refinancing. However,
borrowers may want to lock in if the interest rates begin to rise as well.
Less
frequently, but still possible, a Convertible Loan may be a
Fixed Rate Loan
with an option to convert if the market interest rates drop since the time of
purchase; allowing the borrower to lock in at an even lower interest rate
before a specified period of time.
Be sure to read our other mortgage advice articles:
Fixed Rate Loans
Adjustable Rate Loans
VA Loans
FHA Loans
Balloon Loans
Negative Amortization Loans
Graduated Payment Mortgages
Buy-Down Mortgage
Jumbo Loans
2nd Mortgage Loans
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