A Quick Guide to Convertible Mortgage Loans
In the old days, property financing boiled down to two options. You could get a fixed rate loan or an adjustable rate mortgage. Both had their advantages and disadvantages.
With fixed rate loans, you had the comfort of knowing exactly what you were going to pay each month. There was a downside, however. If rates dropped below what you were paying, it could be aggravating knowing you were stuck with your fixed. You could refinance, but many people hate going through the application process and simply would not.
With adjustable rate mortgages, the advantages and disadvantages were more or less switched. Your initial interest rate was great because it was always a couple points below the rate being charged on fixed loans at that time. This saved you a lot of money on your monthly payments and the total interest you paid over the life of the loan. The downside was you had no stability. If interest rates rose, your month payment did as well. For many people, this caused cash flow problems since they often failed to budget for payment increases.
Given the advantages and disadvantages of traditional loans, many people wondered why better options couldn't be put together. In search of the eternal profit, the mortgage industry started coming up with all kinds of different products. One of the best is known as the convertible loan.
A convertible mortgage is one that combines the best of the adjustable and fixed rate products mentioned above. The loan starts off as an adjustable rate loan. This gives you low initial payments, a boon for anyone. At a set time, usually year 4 or 5, you then have the option of "converting" your loan to a fixed rate for the rest of the term of the mortgage. All and all, it sounds like a pretty good situation and the loan has become popular with borrowers.
While convertible loans are great financing options, there are some things you need to be aware of. First and foremost, you can only convert one time. Second, the time period when you can convert is usually fairly short and the lender will rarely notify you that it is now or never. Third, you often will have to pay a fee to convert, a fee that can sometimes be sizeable.
At the end of the day, the convertible loan is a popular one with many borrowers and rightly so. As long as you understand what you are getting into, it can really be a choice option.
Related Tags: loan, mortgage, home, financing, adjustable, arm, advantages, fixed, covertible, disadvantages
Sergio Haros is with Great Western Mortgage - mortgage brokers providing home loans.
Your Article Search Directory : Find in ArticlesRecent articles in this category:
- Understand The Fha Guidelines Before Considering Fha Mortgage
The U.S. economy was hit hard by the global financial meltdown. In the housing sector, the crisis is - Basic Facts About Multifamily Apartment Construction Loans
When you make an investment, you surely think of getting something out of it to make the deal profit - Commercial Mortgage Refinance Loan - Ideal Solution For Financial Problems
Financial security is something which we have to plan from before. In life, there is no certainty wh - Free Government Grant Money Eligibility Requirements
All of us hear about free government grant money. But what is involved in obtaining this money? What - Top 10 Tips On Buy To Let Mortgages And Property Hunting
If you are looking for an opportunity to invest your savings or any money you have come into, there - A Few Tips On How To Stop Foreclosure
In case you are facing certain financial catastrophe caused by a loss or relocation of a job, or wha - How To Stop Foreclosure And Lose Your Residence To The Bank
In today's market, there are more and more citizens that get big loans then they use their home as a - Most Excellent Way To Stop Foreclosure - The #1 Blueprint For Saving Your Home
Just what is the best measure to stop foreclosure? No doubt you are browsing for an answer to that q - Act Fast To Stop Foreclosure
If you would like to find out how you can put a stop to foreclosure, there is not much to accomplish - Tips For Buying A Home With No Money
There is a popular belief that you can only buy a home if you have great credit. This is false becau
Most viewed articles in this category:
- Mortgage Refinancing - Rate Caps Protect You When Refinancing With an Adjustable Rate Mortgage
Adjustable Rate Mortgages can save you money when mortgage refinancing if you fully understand how t - 100% Mortgage Loans: What You Need to Know
Coming up with a 20% down payment can be a difficult task for many potential homebuyers. If you are - Home Equity Loan Pitfalls
The home equity loan came of age in 1996 when changes in the tax law eliminated deductions for the i - Mortgage Refinancing: How the Fannie Mae Weekly Yield can Help You Comparison Shop
Mortgage refinancing without knowing Fannie Mae's weekly yield is like buying a used car without kno - How to Pay Off Your Mortgage in 7 Years, Without Extra Payments
One of the most exciting new topics concerning wealth is “How to Pay Off Your Mortgage in - Mortgage Rate Comparison
Trying to get an "apples to apples" mortgage rate comparison can often be quite a hassle. Traditiona - Should I Pay Off My Mortgage Early?
Many people think that real estate debt is good debt. They think that their mortgage is their bigges - Mortgage Refinancing: Beware the Mortgage Vultures
If you are in the process of mortgage refinancing you need to be wary of overpaying for your loan. - Mortage Loans - How Much Does It Actually Cost In The End
Mortgage loans are the loans used to finance most people's first home. It is the big loan that ever - Where To Locate Home Improvement Loan Companies
Where to locate home improvement companies is a question that arises from many different people. Som
