Alabama Real Estate Practice Exam

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What can a convertible ARM mortgage be converted into?

  1. A second mortgage

  2. A fixed-rate mortgage

  3. A nonconforming mortgage

  4. A conventional loan

The correct answer is: A fixed-rate mortgage

A convertible ARM mortgage can be converted into a fixed-rate mortgage. This is because an ARM (adjustable-rate mortgage) has a variable interest rate and payment amount, while a fixed-rate mortgage has a constant interest rate and payment amount. By converting the ARM into a fixed-rate mortgage, the borrower can avoid potential increases in their interest rate and enjoy a more stable payment. Options A, C, and D are incorrect because none of these options involve converting an ARM into a fixed-rate mortgage. A second mortgage is a separate loan taken out on the same property, a nonconforming mortgage does not meet the guidelines for a traditional mortgage, and a conventional loan is a type of mortgage that is not insured or guaranteed by the government. Therefore, these options do not accurately describe the conversion process of an ARM mortgage.

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