When it comes to choosing a mortgage loan, many prospective home buyers hem and haw about which one they should opt for. A fixed-rate loan promises stability and no surprises whatsoever when it comes to the amount of the monthly mortgage payment. It also has the downside of locking you into an interest rate which remains static while interest rates are actually falling, and all around you your friends and neighbors who opted for adjustable rate mortgages (ARMs) are celebrating the fact that their monthly mortgage payments are falling too. Of course, choosing an ARM is risky too because when interest rates rise, so do your mortgage payments - which can really take a bite out of your wallet. In fact, oftentimes a rise in interest rates can make many people with an adjustable-rate mortgage switch over to a fixed-rate mortgage instead - this process known as conversion.
An adjustable-rate mortgage conversion is just what it sounds like: a conversion from an ARM to a fixed-rate mortgage. In more detail, to get a conversion, you simply pay a fee and your ARM officially converts over to a fixed-rate mortgage. One caveat to an ARM conversion as oppose to a fixed-rate mortgage, is that pursuant to the terms of your loan - you may get a new fixed rate, but it could be higher than current rates. In a sense, you have to pay for it. For example, if interest rates are falling to the point that you want to switch to a fixed-rate mortgage, you might not get the current low interest rate that's making you want to convert in the first place. It could end up being a point or even two points higher depending on the nature of your loan.
If you're thinking about converting your ARM to a fixed-rate mortgage, check with your mortgage loan bank to see what their offers are. Make sure you do your homework so you know what you would be getting yourself into. It's also very important to consider your finances - see what we can really afford to pay by looking into all of your monthly expenses.
