What is a hybrid Pay Option ARM loan?
Answer: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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| Not at all | Definitely |
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