ARM Conversion Pitfalls

[Lynn Z]

has anyone had experience of converting an ARM to a fixed rate? Number 1, there were questions as to my new address (which I had updated at their prompting when I drafted my mortgage payment); whether or not I still "lived" in the house (I rent it now but lived there three years) as the mortgage language can state "if the loan conditions change" --
a loophole which gives the mortgage company an out for converting a loan if it has become non owner occupied property. Number 2, the market rate that the fixed is converted to was the rate on the date of the letter they wrote me offering the option (after I called and asked when they were going to put it in writing). Number 3 they only charged $250 to do the conversion but there was at least .5 pt. added to the market Treasury rate. When I tracked back to my banker who did the original loan, he seemed to be aware of all of the above...he added that when you do a conversion option you actually are rewriting the terms of the mortgage and the lender has more control than just rolling it into a new rate. Investors must be alert to this practice by lenders because they are told they can refi out of these ARMS up the road and they may not be able to. The incentive is to not convert to fixed but get that higher rate every year. Sounds like "universal default" language from credit card companies doesn't it?