Definition
Conversion
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A conversion is a provision stipulated in a home loan agreement in which the borrower would be allowed to convert the loan structure to another one within a given period of time.
The conversion options available to a borrower are often limited to list of housing loans available that the bank has made available during that moment in time.
For example, if a bank is only offering two types of mortgages to the public for a particular type of property at the moment the conversion clause is activated, then the borrower only have the option of choosing between two available loans to convert to.
In practice, a borrower can effectively change from a floating rate mortgage to a fixed rate mortgage should he find that volatile interest rates are too risky after a few months of taking up the loan.
However, if the period in which the clause is active has expired, then the borrower would be denied the option of conversion.
If the option is triggered during it’s active period, then the bank would be obligated to accept the borrower’s request as long as the terms are agreeable.
Active period of such options are usually within 1 year of accepting the home loan.
Should a borrower find that interest rates of the existing home loan is too high or erratic, and the conversion option has long expired, then the option available would be to request for re-pricing or refinance the loan to another bank which is offering more attractive rates.
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