Question:

What is a hybrid adjustable rate mortgage (ARM)?

Answer:

The hybrid adjustable rate mortgage (ARM) is commonly one of the 1/1, 2/1, 3/1, 5/1, 7/1, 10/1 ARM loans. They are called hybrid ARMs as they begin as a fixed rate mortgage for a set period of time and continue as pure ARMs.

Why is a hybrid adjustable rate mortgage (ARM) used?

The 1/1 to 3/1 ARM loans allow great flexibility to a homebuyer or investor. They are often taken by people who want to have many payment options including interest-only and negative amortization options. These are people who either want to attain seasoning to the property, or want to only keep the home for a short time and then move, sell, refinance, or expect their income to grow substantially. Not to mention that hybrid adjustable rate mortgages (ARMs) allow people to easily qualify for a costly home, unlike FRMs.

The 5/1 to 10/1 hybrid ARMs are most often used by people who expect that they will move out some time in the future but don't know exactly when this will happen.

 

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