While fixed rate mortgages remain at historical low levels, some borrowers are beginning to utilize Hybrid Adjustable Rate Mortgages (“Hybrid ARMs”) for the home buying process. For certain borrowers, Hybrid ARMs are a viable product for the purchase of a home.
A Hybrid ARM is a loan where the loan is fixed for a set period, typically three, five, seven, or sometimes ten years. After the fixed rate period, the loan converts into a one-year ARM. Because there is less risk to the lender from changes in the interest rate environment, Hybrid ARMs will usually have a lower starting interest rate than a comparable 30-year fixed rate mortgage.
Borrowers who do not plan to keep a mortgage longer than the fixed period may be a good candidate for Hybrid ARMs. Borrowers who plan to either payoff the loan early either through early prepayment, refinancing, or sale of the property should carefully consider a Hybrid ARM as a mortgage product. The borrower gets the advantage of a lower initial payment for their mortgage in exchange for the future one-year adjustable rate. In addition, in many cases, borrowers who choose the Hybrid ARM may qualify for a higher mortgage amount due to the lower starting interest rate.
As with any decision involving a mortgage product, borrowers should seek out a qualified professional loan officer to provide advice on helping to decide which product is right for their individual situation. Contact your Googain Loan Officer today for information on the variety of mortgage products available and to find out if the Hybrid ARM is a good fit for your mortgage needs.