Convertible mortgages allow the customers to change the loan’s interest rate after some period of time or some specified movement in interest rates. Convertible loans are popular because they let homebuyers keep their options open and give them the maximum amount of loan flexibility.
Convertible loans allow homebuyers to be their own banker. If they think fixed rates are headed lower, they start their loan with the lower rate of an ARM. Then they convert to a fixed rate either before the loan closes or wait up to five years after that to do so.
Convertible fixed rate mortgages are often referred to as the Reduction Option Loan (ROL) or, in some locations, the Reducing Interest Loan (RIL), or Mortgage (RIM). This new type of loan offers homeowners the option of getting a loan that, under the right conditions, can be adjusted to a lower interest rate with a payment of $100 or $200 or so and a small loan amount-based fee, sometimes as little as one-fourth of a percentage point. These conditions usually are a prescribed movement in rates-typically two percent below the initial - during a set time limit-between months 13 and 59, for example.
