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Convertible ARM

Function: noun

An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions. The conversion of a convertible ARM would be possible at certain specified points in the life of the mortgage. Generally, the mortgage must have been in place for thirteen months before the option to convert is possible, although its also common to have to wait thirty-six months before its possible to convert to a fixed rate mortgage. The main benefit of a convertible ARM is that it allows a borrower to take advantage of a better interest rate in the future. On the other hand, if interest rates only rise, then the borrower would be at a significant disadvantage with a convertible ARM.

Thesaurus / Related Terms
Convertibility Clause
Adjustable Rate Mortgage
Fixed Rate Mortgage
Mortgage