How does an ARM conversion program work?
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Many ARMs come with conversion programs. For a fee, say $250 to $500, you can convert to a fixed-rate. The conversion rate won’t be the best in the world, it’s typically about 5/8ths of a point higher than a given index, but it may be better than the fixed rate at the time you applied for financing — or fixed rates in the future if rates rise.
The attraction of conversion programs is that they represent a cheap form of refinancing. There’s no settlement involved because the loan has already been recorded. Without a new settlement, a host of fees, charges, and taxes can be avoided. In effect, a conversion program is really a form of loan modification.
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