What is a hybrid Pay Option ARM loan?


The hybrid Pay Option ARM loan is one that offers a little greater stability and predictability than a typical pick-a-pay ARM. Most Option ARMs advertise their low rates for a several month period, while a hybrid Pay Option ARM loan can hold the starting rate for 3, 5 or 7 years.

A Hybrid Pay Option ARM Loan Common Features

The hybrid Pay Option ARM loan combines an Option ARM with a hybrid ARM. Here is how hybrid Pay Option ARM mortgage loans can look like.

Possible Hybrid Pay Option ARM Characteristics
Adjustment Period: 6 months or 1 year
Minimum Payment: 2 to 5 % below the start rate
Minimum Payment Change Cap: Usually none
Initial Fixed Rate Period: 3, 5 or 7 years
Initial Fixed Payment Period: 3, 5 or 7 years
After that, how often the minimum payment changes: Never
Index: 6-month or 1-year LIBOR; possibly others, as well
Margin: According to lender
Initial Loan Recast: Depending on schedule - after 3, 5 or 7 years
Subsequent Recasts: Usually none
Payment Options Period: Usually 10 years
Lifetime Cap: Start rate + 5 to 7%
Negative Amortization Cap: 110 or even 125%
First Interest Change Cap: Start Rate + 2 to 5%, depending on fixed period
Periodic Interest Change Cap: 1 to 2%
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