When Can You Exercise the Convertible Option

Anytime you want to? Not necessarily. Most frequently, the option to convert lasts only between the thirteenth and sixtieth months (fifth year) of a 360-month (30-year) loan. Some conversion options terminate earlier than 60 months. While many ARMs do permit you to convert anytime within that four-year window of opportunity, others limit the conversion to the annual anniversary dates of the loan. If interest rates hit rock bottom in June and your anniversary dates in November, you could end up out of luck. To comply with the lender's conversion rules, you will need to provide timely notice as spelled out in the loan agreement.

If a loan rep offers a conversion option completely without charge, take it. But if this feature requires an up-front cost, or if the option stands critical to your decision to accept an ARM, stay focused on the substance. Remember, that flashy convertible that you're admiring could prove to be a clunker.

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