What Is A Hybrid ARM Loan

what is a hybrid arm loan

With the hybrid mortgage loan you can take advantage of the features of a fixed-rate mortgage mixed with the advantages of having our adjustable-rate mortgage. This is useful for people who are going to be staying in their homes for a short amount of time and who happen to know beforehand how long they are going to be holding on to the mortgage.

The hybrid loan usually is an adjustable rate mortgage that has a fixed interest rate. Of 3 to 10 years. Usually an ARM has the fixed interest rate duration of a few months but in our case of a hybrid loan this is much more. Some of the common variations hybrid ARMs are 3/17, 5/25, 7/23, 10/20.

The 1st figure states the duration during which the interest rate stays fixed. These kind of hybrid loans are preferable to a fixed-rate mortgage because even hybrid ARMs usually start with an interest rate that is much less than a fixed rate mortgage. However since the initial rate is locked in for a longer period of time, the interest rate is going to

be slightly higher than the typically ARM where the lock-in period is only a few months.

Saving money on a hybrid ARM hinges on the fact that you will move out of the house when the fixed rate interest duration is over. If you intend to stay in the house for longer than that then perhaps you would be better off with a fixed-rate mortgage.

Generally, the rule of the thumb is that if you intend to stay in the house for less than 5 years, you can come out ahead with an adjustable rate mortgage and save money as compared to fixed rate home loan.

It also depends upon the difference between the interest rate being offered on the ARM as compared to the FRM. There are times when the difference between the 2 is minuscule whereas others when the difference between them is more than 1%. If the difference between the 2 kind of mortgages is very less than a fixed rate home loan could probably offer you better value with more peace of mind with its consistency and stability.

Source: www.mortgaid.com

Category: Credit

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