What is a conversion clause on an ARM?

A conversion clause is an optional feature found in some Adjustable-Rate Mortgages that gives the borrower the right to convert the loan from an adjustable rate to a fixed rate — usually at a predetermined point in the loan, such as after the first adjustment period. This can be a valuable safety net for buyers who want the lower initial payments of an ARM but wish to retain the option to lock in a stable rate if interest rate conditions become unfavorable.

Not all ARMs include a conversion clause, and those that do may charge a conversion fee or impose conditions on when and how the conversion can be exercised. For buyers financing second homes or investment properties in the Western Catskills — a common scenario in the vibrant rural market of Delaware, Greene, Ulster, and Otsego counties — a conversion clause can provide flexibility as life circumstances and financial goals evolve. Ask your lender specifically whether this feature is available and what the associated terms are before you commit to a loan product.