A hybrid ARM is a loan that is fixed for a certain period of time, say, 5, 7 or 10 years. The rate is lower than a fixed rate but there is more stability than an ARM that adjusts every year. In other words it’s a cross between an ARM and a fixed rate. The borrower enjoys a fixed rate for the initial period of 5, 7 or 10 years. Often times, borrowers don’t anticipate staying in a property more than 5-7 years. So, why not take advantage of the monthly savings that are guaranteed for the initial period. There is no reason to pay the “insurance” of a 30 year fixed rate when it is reasonably certain you won’t have that loan for more than 6 or 7 years.
The difference in rate may be as much as 1% or more for a 5/1 ARM. The longer the initial term the higher the rate. But in all cases, hybrid ARMs come with lower rates than fixed rates. Give us a call and we’ll discuss your options.