The words “variable” and “adjustable” are often used interchangeably. With a hybrid ARM, the index is established as a reference interest to which the margin is added and thus calculate the new rate that will be enacted once the reinstatement date has been reached. When refinancing an ARM mortgage to a fixed-rate mortgage, it's important to carefully consider the new loan term, as it could have a significant impact on the amount you pay in total interest for owning the home. Interest rates change depending on their marginal rates when ARMs are adjusted together with the indices to which they are linked.
ARMs have a limit on how much the interest rate can rise during the life of the mortgage or during the annual reinstatement. Long-term fixed-rate mortgages, especially those with a 30-year period, may have low interest rates that are competitive.
Hybrid branchesoffer homebuyers options that may be better suited to their needs. If a borrower hires an ARM with the intention of paying off the mortgage by selling or refinancing before the rate is restored, personal finance or market forces could trap him in the loan and potentially subject him to a rate hike that he cannot afford.
In most cases, ARMs offer lower introductory rates than traditional mortgages with fixed interest rates. Hybrid ARMs have a fixed interest rate for a set period of years, followed by an extended period during which rates are adjustable. In the past, ARMs were linked to the yield of 1-year Treasury bills, the Eleventh District Fund Cost Index (COFI) or the London Interbank Supply Rate (LIBOR). If interest rates rise, refinancing to a new fixed-rate loan or even a new ARM may not result in as much interest savings.
An adjustable-rate hybrid mortgage, or hybrid arm (also known as a fixed-period ARM), combines the features of a fixed-rate mortgage with an adjustable-rate mortgage. The borrower should carefully consider their time horizon when choosing a hybrid branch and recognize the risks associated with the reinstatement date or the expiration of the fixed interest rate period. In general, these hybrid loans aren't a good option if you're short on cash and need a consistent, reliable payment. Hybrid ARMs are very popular with consumers because they can offer a significantly lower initial interest rate than a traditional fixed-rate mortgage.
Adjustable-rate hybrid mortgages can be fixed at fixed rate intervals of three, five, seven or 10 years and the adjustable rate is activated on the reinstatement date.