Question:

Which one is better – a 5/1 interest only mortgage or a hybrid 5/1 ARM?

Answer:

Home buyers planning to move every 3 to 5 years often ask that question. Is the 5/1 interest-only adjustable rate mortgage better than the 5/1 Hybrid ARM?

If you are not an investor or a homeowner with a knack for real estate sale and refinancing, you might prefer to get a loan that could allow you to maintain or build some equity.

If you are moving out anyways and you have at least 7 to 10% equity, you might just stick to the 5/1 IO adjustable. It will be cheaper than the 5/1 hybrid and since you have some equity you are not running a huge chance of high depreciation levels and you don't need to pay towards principal.

With a 100% LTV a 5/1 hybrid could be the better choice.

If your property is in a rising home market you may not need to worry about equity. However, though, it's good to build some just in case properties depreciate. However, you have to run the calculations anyways. Currently, a 5/1 hybrid goes at 4.5% and the monthly payment is around $510 for every $100,000. A 5/1 interest only is around 4.7% and would save you $120 monthly compared to the hybrid.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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