Definition§
A Hybrid Adjustable-Rate Mortgage (Hybrid ARM) is a type of adjustable-rate mortgage that combines the features of both fixed-rate and adjustable-rate mortgages. During the initial period, which can last 3, 5, 7, or 10 years, the interest rate remains fixed. After this fixed period has ended, the interest rate typically adjusts annually based on a specified index.
Examples§
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3/1 Hybrid ARM:
- Fixed Rate Period: 3 years
- Adjustment Period: Annually after the fixed period
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5/1 Hybrid ARM:
- Fixed Rate Period: 5 years
- Adjustment Period: Annually after the fixed period
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7/1 Hybrid ARM:
- Fixed Rate Period: 7 years
- Adjustment Period: Annually after the fixed period
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10/1 Hybrid ARM:
- Fixed Rate Period: 10 years
- Adjustment Period: Annually after the fixed period
Frequently Asked Questions (FAQs)§
What is the main advantage of a Hybrid ARM?§
A key advantage of a Hybrid ARM is the lower initial interest rate compared to a traditional fixed-rate mortgage, which can result in lower initial monthly payments.
How often does the interest rate adjust after the fixed period?§
Once the fixed-rate period ends, the interest rate typically adjusts annually based on a predetermined index.
Is there a cap on how much the interest rate can increase?§
Yes, most Hybrid ARMs have interest rate caps which limit how much the rate can increase per adjustment period and over the life of the loan.
Can I refinance a Hybrid ARM?§
Yes, you can refinance a Hybrid ARM into a fixed-rate mortgage or another adjustable-rate mortgage if rates become unfavorable.
Who is a Hybrid ARM best suited for?§
Hybrid ARMs are often best suited for homebuyers who plan to sell or refinance before the adjustable period begins, or those comfortable with some interest rate risk after the fixed period ends.
Related Terms§
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Fixed-Rate Mortgage: A mortgage loan where the interest rate remains constant for the entire term of the loan.
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Adjustable-Rate Mortgage (ARM): A type of mortgage with an interest rate that periodically adjusts based on a specified index.
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Interest Rate Cap: A limit on how much the interest rate can change during each adjustment period of an ARM.
Online References§
Suggested Books for Further Studies§
- “The Loan Guide: How to Get the Best Possible Mortgage” by Casey Fleming
- “Home Buying Kit For Dummies” by Eric Tyson and Ray Brown
- “Mortgage Management For Dummies” by Eric Tyson and Robert S. Griswold
Fundamentals of Hybrid Adjustable-Rate Mortgage: Real Estate Basics Quiz§
Thank you for learning about Hybrid Adjustable-Rate Mortgages through our comprehensive guide and tackling our informative quiz questions. We hope this enhances your understanding and aids in your financial planning.
