DEFINITION of 'Convertible ARM'

An Adjustable Rate Mortgage (ARM) that gives the borrower the option to convert to a fixed-rate mortgage. Convertible ARMs are marketed as a way to avoid rising interest rates and usually include specific conditions. The financial institution often charges a fee to switch the ARM to a fixed-rate mortgage.

BREAKING DOWN 'Convertible ARM'

Convertible ARMS can be used to lock in to an interest rate if the borrower feels the rates will increase. Restrictions include the ability to lock in only within a certain period, such as the first five years. The mortgages can also have beneficial terms; for example, the locked-in interest rate is often the lowest rate offered within the seven days prior to locking in (the interest rate is usually a little higher than the current market rate).

RELATED TERMS
  1. Adjustable-Rate Mortgage - ARM

    An adjustable rate mortgage is a type of mortgage in which the ...
  2. 5-1 Hybrid Adjustable-Rate Mortgage ...

    An adjustable-rate mortgage (ARM) has an initial five-year fixed-interest ...
  3. Secure Option ARM

    A type of payment-option adjustible-rate mortgage with a fixed-interest-rate ...
  4. Indexed Rate

    An interest rate charged on loans to borrowers that is calculated ...
  5. Alternative Mortgage Transaction ...

    An act from 1982 that over-rode many state laws that prevented ...
  6. Hybrid ARM

    A hybrid adjustable-rate mortgage blends the characteristics ...
Related Articles
  1. Personal Finance

    This ARM Has Teeth

    Find out how to avoid getting bitten when your mortgage rate resets.
  2. Personal Finance

    Adjustable Rate Mortgage: What Happens When Interest Rates Go Up

    Adjustable rate mortgages can save borrowers money, but they can't go into it blind. In order to benefit from an ARM, you have to understand how it works.
  3. Personal Finance

    Option ARMs: American Dream Or Mortgage Nightmare?

    Option adjustable rate mortgages could make or break your home-buying experience.
  4. Personal Finance

    Millennials Guide: How to Pick the Right Mortgage

    Here’s help in finding the perfect, affordable loan for that home you have been dreaming about.
  5. Investing

    3 Growth Opportunities For ARM Holdings

    ARM Holdings highlighted several growth opportunities in its most recent roadshow presentation. Here are three of the large opportunities it talked about.
  6. Personal Finance

    5 Risky Mortgage Types To Avoid

    There are plenty of ways to end up with a bad mortgage. The risks of these five should make every homebuyer think twice before signing.
  7. Personal Finance

    Shopping for a Mortgage in 2017? Use This Tool First

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2017 can all be done online.
  8. Personal Finance

    Adjustable-Rate Mortgage Indexes: Know Your Benchmark

    Understanding these benchmarks can help you select the most competitive adjustable-rate loan.
  9. Personal Finance

    When (And When Not) to Refinance Your Mortgage

    There are both good and bad reasons to refinance. Learn more about both here.
RELATED FAQS
  1. Is an adjustable rate mortgage (ARM) safe?

    Learn why an adjustable rate mortgage (ARM) can be a safe option as long as the borrower is familiar with the underlying ... Read Answer >>
  2. What is the difference between a 2/28 and a 3/27 ARM?

    An adjustable rate mortgage (ARM) is a type of mortgage that has a fixed interest rate for a certain time period at the beginning ... Read Answer >>
  3. Why is the Arms Index (TRIN) important for traders?

    Learn more about the Arms Index, or TRIN, and how traders and chartists use the Arms to measure market volatility and trading ... Read Answer >>
  4. How is the Arms Index (TRIN) calculated?

    Read how to calculate the Arms Index, or TRIN, using the ratio and volume of advances and declines in any given stock index ... Read Answer >>
Trading Center