If you are buying a home, chances are that you need to get financing to help pay for it. A traditional mortgage will lock you into a specific interest rate that remains consistent over the life of the loan, which is appealing to homeowners that want their mortgage payment to remain the same for budgeting purposes. However, convertible mortgages allow you to have some flexibility with the ability to get a lower interest rate at any point while you have the loan. By understanding what convertible mortgages are, you can decide if it is the type of mortgage you want to get.
What Are Convertible Mortgages?
Convertible mortgages start with having adjustable rates, and over time, you can decide to change to a fixed interest rate if you would like. The payment schedule for convertible mortgages can vary as well, with the ability to schedule weekly, bi-weekly, or monthly payments.
What Benefits Do Convertible Mortgages Have?
If you feel like the interest rates are going to drop in the future, and you are ready to buy a home soon, convertible mortgages give you some much needed flexibility with what your interest rate will be. You wait until the interest rates drop down to as low as you believe they will go, and then pay a fee to lock in your interest rate. The fee that you end up paying can be worth it when you consider the long-term savings of the lower interest rates on your mortgage. The fee would also be cheaper than refinancing your home to become a fixed rate mortgage.
What Are The Catches of Convertible Mortgages?
When approaching a bank about convertible mortgages, it's possible that they will require you to make a down payment that is a specific percentage of the home you're purchasing. The lender may also request that the mortgage term is for a longer period of time, such as 30 years.
You'll also have a single opportunity to convert the mortgage into a fixed interest rate. You cannot simply go back and forth between an adjustable rate and a fixed rate based on how you see interest rate trends going. You may also have limitations on when you can lock in your rate, which can be within the initial 5 years of your mortgage.
For more information on convertible mortgages, speak with a mortgage broker in your area that can help you make a decision. For more information, contact a company like Premium Mortgage Corp.