What do we call the provision in an ARM allowing conversion to a fixed-rate loan at some point during the term?

What do we call the provision in an ARM allowing conversion to a fixed-rate loan at some point during the term?

• A. Conversion Clause
• B. Adjustment Provision
• C. Rate Lock Clause
• D. Fixed Rate Option

Answer: (A)

The correct term for the provision in an Adjustable Rate Mortgage (ARM) that allows a borrower to convert their loan to a fixed-rate loan at a certain point during the term is known as a conversion clause. This feature can be beneficial for borrowers who may wish to lock in a fixed interest rate if they anticipate that interest rates will rise in the future. The conversion clause provides flexibility and can help borrowers manage their interest rate risk throughout the life of the mortgage. Understanding this provision is important for mortgage professionals, as it helps them provide the right options for their clients based on their financial goals and market conditions.

The correct term for the provision in an Adjustable Rate Mortgage (ARM) that allows a borrower to convert their loan to a fixed-rate loan at a certain point during the term is known as a conversion clause. This feature can be beneficial for borrowers who may wish to lock in a fixed interest rate if they anticipate that interest rates will rise in the future. The conversion clause provides flexibility and can help borrowers manage their interest rate risk throughout the life of the mortgage. Understanding this provision is important for mortgage professionals, as it helps them provide the right options for their clients based on their financial goals and market conditions.