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Prepayment
and Fixed Rate Conversion
If you get an ARM and your financial circumstances change, you may decide that you don’t want to risk any further changes in the interest rate and payment amount.
When you are considering an ARM, ask for information about prepayment and loan conversions.
Glossary of Terms
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Prepaying Your ARM
Fixed Rate Mortgage Conversion
Adjustable Rate Mortgages - Prepayment
Some agreements may require you to pay special fees or penalties if you pay off the ARM early. Many ARMs allow you to pay the loan in full or in part without penalty whenever the rate is adjusted. Prepayment details are sometimes negotiable. If so, you may want to negotiate for no penalty, or for as low a penalty as possible.
Conversion
Your agreement with the lender may include a clause that lets you convert the ARM to a fixed-rate mortgage at designated times. When you convert, the new rate is generally set at the current market rate for fixed-rate mortgages.
The interest rate or up-front fees may be somewhat higher for a convertible ARM. Also, a convertible ARM may require a special fee at the time of conversion.
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Having Financial Problems?
This information is presented to help you make the important decisions involved in buying and financing your home. However it should not be viewed as all inclusive OR as a replacement for professional advice. Talk with attorneys, mortgage lenders, real estate agents, and other advisers for information about lending practices, mortgage instruments, and your own interests before you commit to a specific loan or action.
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