Resources > Glossary > Convertibility Clause

Glossary of Notary Public, Mortgage, Signing Agent, and Loan Signing Terms.

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Common Terms 1   Common Terms 2

Convertibility Clause

Function: noun

Definition 1:
A clause in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified time frames after the loan originates. With a convertibility clause in a convertible ARM, the borrower has the opportunity to get an interest rate that is lower than what was available at the time that the loan was originated. A convertibility clause could save the borrower thousands of dollars should interest rates significantly decrease after the origination of the loan. The first opportunity to convert a loan generally does not occur until the loan is at least thirteen to thirty-six months old depending on the stipulations of the contract.