What does the term "conversion" refer to in mortgage loans?

The term "conversion" in the context of mortgage loans specifically refers to the process of changing an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. This option is significant because homeowners may initially choose ARMs to take advantage of lower interest rates in the short term, but as interest rates rise or as they seek more stability in their monthly payment amounts, they may opt to convert to a fixed-rate mortgage. This transition allows borrowers to lock in a stable, consistent interest rate for the remainder of the loan term, providing predictability in their financial planning.

Switching from one lender to another typically pertains to refinancing but does not align with the term "conversion." Similarly, consolidating multiple loans into one or extending the term of the mortgage are processes related to refinancing or loan modification, but they do not convey the specific concept of converting an ARM to a fixed-rate mortgage. Thus, while those other options involve adjustments in borrowing contexts, they do not accurately represent the definition of "conversion" in mortgage terms.