Hybrid ARM ProgramHybrid ARM mortgages, also known as fixed-period ARMS, combine features of both a fixed-rate and adjustable rate mortgage. Hybrid loans start out with interest rates that are fixed for a given period of time, from 3 to ten years, and then the loan converts to an ARM for the remaining loan term. For example, a 30-year hybrid with a fixed rate for seven years that switches to an adjustable rate for the remaining 23 years. The reason that a fixed-period ARM is so good is that the beginning interest rate for the fixed porition of the loan is lower than the rate that could be gotten with a fixed-rate mortgage over the same period of time, and this change is sometimes significant. Therefore, you are able to obtain a lower rate while still maintaining stable payments for a period of time. By contrast, with a standard 1-year ARM, the rate changes every year starting just 12 months after the loan is obtained initally. Even though the beginning rate on an ARM is much lower than with standard mortgage loan, there is the risk of the interest rate increasing dramatically in the future. In some cases, a homeowner may obtain a hybrid ARM mortgage, and refinance when the initial term expires. For that reason, this loan is best if you do not intend to live in your home for very long. With a lower rate, and lower monthly payments than a 30 or 15 year loan, it is easier to break even on refinancing costs such as title insurance and any appraisal fees. Because the monthly payment will be lower, you can make extra payments to pay off the loan early, and save thousands on interest payments over the years you have the loan. |
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