A hybrid mortgage loan is a unique financial instrument that combines the benefits of a fixed rate mortgage with the savings opportunities of an adjustable rate mortgage. also known as fixed-period Adjustable Rate Mortgages or hybrid Adjustable Rate Mortgages, will allow home buyers to get the best features of both types of loans because they combine a fixed-rate term at the beginning of the loan that converts to an adjustable rate loan after a set period of time which is usually three, five, seven or ten years.
Hybrid mortgage loans are typically expressed as a 3/1, 5/1, 7/1 or 10/1 Adjustable Rate Mortgages. The first number in the pairing represents the number of years the loan rate will remain at a fixed rate. The second number indicates the adjustment interval of how often the interest rate of the loan will change after the fixed period. This means a 7/1 ARM loan is one where the fixed period is seven years and the interest rate adjustments will occur each year thereafter.
A hybrid loan can often deliver a lower interest rate than buyers can usually get with a typical 30 year fixed mortgage loan. This makes hybrid loans a good choice for those borrowers who expect to be selling their home within the first 10 years because they get the advantage of a lower fixed rate while they are living in the home and they can simply sell the house before the adjustable rates kick in. Hybrid loans can also be a good choice for those borrowers who want and can afford an adjustable rate mortgage, but desire some added interest rate protection during the first few years of the loan.