Converting Your ARM to a Fixed Rate Mortgage

When it comes to home loans, there are several types available. Two popular categories of mortgages are the adjustable rate mortgage (ARM) and the fixed rate mortgage. Both types have their own set of sub-types (hybrid ARMs, 15 year fixed rate mortgages, etc.) and all have their own set of benefits and drawbacks.

When comparing ARM rates to fixed mortgage rates, you will typically see a lower initial rate on the ARM. This makes them an attractive choice for many borrowers. However, ARM rates don't always stay low. Sometimes homeowners who were lured in by a drastically low rate upfront find it hard to make their monthly payments after the rate has jumped.

Before signing up for an ARM, ask your lender about details regarding possible conversion to a fixed rate loan in the future. According to Fannie Mae's website, many ARMs offer borrowers the option to convert to a fixed rate loan at specified times during the early years of the mortgage. The conversion availability times can either occur periodically (which allows the borrowers the option of converting on specified interest rate change dates) or monthly (which allows the borrowers to convert at the beginning of every month for a specified period of time).

There are a few eligibility requirements for conversion and not every ARM loan will carry the same conversion times, so it's best to speak directly with your lender for more information.