1.
Fixed to ARM
Previously,
the way to
bridge the
gap caused
by higher
interest
rates was to
change from
a simple
fixed rate
mortgage to
an
adjustable
rate
mortgage.
However,
concerns
were raised
by
homeowners
about the
possibility
of increased
payments
throughout
the life of
their
mortgage
payment,
more so when
interest
rates spike.
That concern
prompted the
creation of
hybrid
mortgages.
2. Fixed
Period Arm
A hybrid
mortgage
usually goes
by the name
fixed-period
ARM, and it
is a
combination
of the fixed
rate and
adjustable
rate
mortgages.
Usually a
hybrid
mortgage
will begin
with a fixed
interest
rate for
anywhere
from 3 to 10
years. After
that period,
the loan
becomes and
adjustable
rate
mortgage,
and then
your
mortgage
payment can
be adjusted
on a yearly
basis. A
benefit of
hybrid
mortgages is
that the
initial
interest
rate will
usually be
much lower
than the
interest
rate on a 30
year fixed
mortgage.
3. Time of
Loan
When looking
at hybrid
mortgages as
an option
for your
mortgage,
you will
want to take
into
consideration
that the
shorter the
fixed term
of your
loan, the
lower your
initial
interest
rate will
be. So if
you know
your will
not be
living in
your home
for more
than three
to five
years, you
may want to
opt for the
shorter
fixed term
and get the
best savings
from hybrid
mortgages.
4. Watch
out...
In some
states
hybrid ARMs
do have
prepayment
penalties,
while in
other states
prepayment
penalties
are illegal.
Usually
there is a
prepayment
penalty for
the first
three years
of the
hybrid
mortgage.
This means
that if you
sell your
home within
the first
three years
you own it,
then you
will have to
pay a fee to
your hybrid
mortgage
lender. If
you live in
a state
where
prepayment
penalties
are legal,
you will
want to be
sure you are
going to
stay in your
home for at
least three
years or opt
for an ARM.
5. Balloon
Fixed
Another type
of hybrid
mortgage
that
borrowers
consider is
the balloon
payment
fixed
mortgage,
which
usually have
short terms
of 5, 7, or
10 years.
These hybrid
loans have
lower
interest
rates than
30 year
fixed
mortgages or
fixed-period
ARMs. With a
balloon
payment
fixed
mortgage,
your entire
balance
would be due
at the end
of the term.
In some
cases, this
type of
hybrid
mortgage
would allow
you to
extend your
loan for one
year at an
ARM rate,
which offers
borrowers
some peace
of mind if
refinancing
at the end
of the loan
is
difficult.
Still, hybrid mortgages make buying a home somewhat easier for middle to low income families in todayճ booming real estate market. Consider closely if a hybrid mortgage is right for your financial and living situation.
