At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed-rate mortgages. The conversion feature may be available at extra cost. After the discount period, the ARM rate will probably go up depending on the index rate. The index is the measure of interest rate changes that the lender uses to decide how much the interest rate on an ARM will change over time. No one can be sure when an index rate will go up or down.
Some index rates tend to be higher than others, and some more volatile.
You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported. The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment. Negative Amortization Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance.