ARM Conversion

ARM Conversion

Refinancing can be done for many reasons, but switching from an adjustable-rate mortgage (or ARM) to a fixed-rate mortgage is one of the most common.

Contact Us To Know More
WhatsApp Image 2022-09-23 at 1.57.26 PM (1)

What Is an ARM Conversion Option?

An ARM conversion option is a clause associated with some adjustable-rate mortgages (ARMs) that permit the borrower to convert the variable interest rate to a fixed rate within a specific period or at certain future dates.

The general rule is that refinancing to a fixed-rate loan makes the most sense when interest rates are low. While no one can predict whether rates will go up or down, many homeowners are taking advantage of today's low rates to refinance from their adjustable-rate mortgage to a new fixed-rate mortgage. If you're among those considering this move, here are some points to be aware of.

About adjustable-rate mortgages

An adjustable-rate mortgage (ARM) has a fixed interest rate for a specified initial term—say, five years—after which the interest rate may vary. If you are considering an ARM, it's essential to read all the details. Things to consider when looking at an ARM include:

  • Lower initial rate: The interest rate during the initial fixed period is usually lower than that of a fixed-rate mortgage, which can save you money if your goals align with this period.  
  • Interest rate caps: To protect against significant interest rate moves after the initial fixed period, many ARMs offer limits on how much your rate can increase during any given interval (cap adjustment) and over the life of the loan (life cap). 
  • Interest-only options: Some ARMs offer an interest-only option to decrease your initial monthly payments even further. However, it is essential to remember that your fees will not reduce your loan principal unless you choose to pay more than the minimum billed amount during the interest-only period.

When to Use an ARM Conversion?

An ARM may be a good option for those who plan to do something specific—such as pay off the loan, sell the home, or refinance—before the initial interest rate resets. However, borrowers should be willing to take on the risk that interest rates could rise and shouldn't assume they'll be able to refinance or sell the home before rates change quickly. You'll also want to compare the general interest rate with your loan's teaser rate—if you're still in the latter—and when your ARM's interest rate will reset.

Along with interest rate trends, consider your situation and whether a fixed rate makes sense. For example, people often opt for ARMs when they plan to be in a home for a limited, relatively short term. If that's still the plan, it's likely not worth the cost to convert. However, invoking the conversion might make sense if you think you will remain in residence for a while.

Remember, borrowers are generally allowed to invoke their conversion option clause within the first five years of their mortgage, so make sure any moves coincide with the time frame.

Main Street Mortgage Company

We bring a customized, unique approach to mortgages. Our lending solutions use the perfect hybrid of human-driven insights and technical prowess to process loans faster and significantly reduce costs.

PHONE

(713) 528-1245

E-MAIL

pes@texasmainstreet.com

ADDRESS

3100 Richmond Ave 
#107 Houston, TX 77098

Name(Required)
Consent
Consumers wishing to file a complaint against a company or a residential mortgage loan originator should complete and send a complaint form to the Texas Department of Savings and Mortgage Lending, 2601 North Lamar, Suite 201, Austin, Texas 78705. Complaint forms and instructions may be obtained from the Department's website at www.sml.texas.gov. A toll-free consumer hotline is available at 108770276-5550.
© 2024 Main Street Mortgage Company, Designed by Amplispot
cross-circle linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram Skip to content