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. This type of mortgage will have an initial fixed interest rate period followed by an adjustable rate period. A hybrid mortgage has a fixed interest rate over a period of time and is then adjusted periodically for the rest of the loan. Essentially, it has the features of a fixed-rate mortgage and an adjustable-rate mortgage.
Due to the payment limit, you may find that you're paying more for the hybrid mortgage than for the original loan amount, which could negate any savings you received during the fixed-rate period. A hybrid loan is a mix of two types of loans, specifically a fixed-rate loan and an adjustable-rate mortgage. A hybrid mortgage starts with a fixed interest rate and then adjusts based on the terms of the loan. Similarly, a five-year hybrid has a fixed interest rate for five years and then adjusts annual interest rates for the remaining 25 years.
The downside to hybrid mortgages is that you could have a much higher monthly payment if your interest rate adjusts upwards. Depending on your lender, you may have access to a wide variety or just a few hybrid mortgage options. This lower rate generally means a lower monthly payment, making the ARM hybrid loan more affordable for the first few years. This may not be bad for everyone, but if you're looking for a simple loan plan, a hybrid loan may not be for you.
For hybrid mortgage loans of five years or more, the initial adjustment limit is 2 percentage points up or down, and the lifetime adjustment limit is 6 percentage points. There are four hybrid mortgage products backed by the Federal Housing Administration (FHA) with fixed rate periods of three, five, seven, or 10 years. By offering the best of both worlds for those who prefer not to face the risks associated with charging interest with a rate structure, a hybrid mortgage allows access to fixed and variable rates. A hybrid mortgage is a mortgage loan with a fixed interest rate for a specified period of time, after which the rate is adjusted periodically for the remaining term of the loan.
With so many options, it's important to review the rates and limits of each type of conventional hybrid mortgage you're considering. A hybrid loan differs from an interest-only loan in that more money is earmarked at the beginning of the loan. If you expect a raise or salary increase before the fixed-rate period ends, a hybrid mortgage could provide you with a way to get a mortgage loan now, knowing that you'll be in a good position to make payments after the fixed-rate period ends.
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