Home Owner Financing
Fixed-period Adjustable-Rate Mortgage (ARM) or hybrid ARM
Most lenders today offer a fixed-period or hybrid ARM,-which is an adjustable-rate mortgage that features an initial fixed interest rate period, typically of 5, 7 or 10 years. After the fixed-rate period expires, the interest rate becomes adjustable for the remainder of the loan term. Fixed-period ARMs are often named by the length of time the interest rate remains fixed.
Example: In a 5/1 ARM, the 5 stands for the five-year introductory period, during which the interest rate remains fixed. The 1 shows that the interest rate is subject to adjustment once per year after the introductory period and for the remainder of the loan term.
When might a Hybrid ARM make sense?
If you believe interest rates will go down in the future; however, because rates are currently low, it may be more likely that rates will increase. So it’s important that you are confident that you can afford the monthly payment if the interest rate adjusts upwards to the maximum amount possible with this mortgage.