What Is a Hybrid ARM? A hybrid adjustable-rate mortgage, or hybrid ARM (also known as a "fixed-period ARM"), blends characteristics of a fixed-rate mortgage with an adjustable-rate mortgage. This type of mortgage will have an initial fixed interest rate period followed by an adjustable rate period.
Simply put, a hybrid mortgage combines features of a fixed-rate mortgage and an adjustable-rate mortgage (ARM). A hybrid mortgage is a home loan with a fixed interest rate for a specific period of time, after which the rate adjusts periodically for the remaining loan term.
A 5/1 ARM is a common type of 30-year adjustable-rate mortgage; this is a loan that adjusts its rate periodically. The 5/1 refers to two key things for borrowers: fixed period of the mortgage — the first five years — and the 1 refers to how often the interest rate adjusts after that, usually annually.
What is a “Hybrid ARM”? A Hybrid ARM is a Hybrid Adjustable Rate Mortgage. This type of loan remains fixed at the initial interest rate for a minimum of 3 years and then like an ARM could change.
3/1 ARM Meaning
It's a hybrid home loan program with a 30-year term. Meaning it's fixed before becoming adjustable. You get a fixed interest rate for the first 3 years. Then it can adjust once annually for the remaining 27 years.
A 7/1 ARM is a good option if you intend to live in your new house for less than seven years or plan to refinance your home within the same timeframe. An ARM tends to have lower initial rates than a fixed-rate loan, so you can take advantage of the lower payment for the introductory period.
Prepayment penalties.
Some ARMs, especially interest only and payment options, charge fees if you try to pay off the loan early. That means if you decided to sell your home or refinance it, you will pay a penalty on top of paying off the balance on your loan.
How Do VA ARMs Work? Different lenders may have different ARM offerings for VA loans, but to give you a general idea of how this works, we'll be going over the 5/1 ARM that we offer. The 5 refers to the number of years that the rate stays fixed at the beginning of the loan, so in this case rates stay fixed for 5 years.
A hybrid adjustable-rate mortgage, or hybrid ARM (also known as a "fixed-period ARM"), blends characteristics of a fixed-rate mortgage with an adjustable-rate mortgage. This type of mortgage will have an initial fixed interest rate period followed by an adjustable rate period.
A VA adjustable-rate mortgage (ARM) is a home loan backed by the United States Department of Veterans Affairs with a variable interest rate that may change over time. VA borrowers actually have a built-in advantage when it comes to ARMs.
ARM benefits
The advantage of a 5/1 ARM is that during the first years of the loan when the rate is fixed, you would get a much lower interest rate and payment. If you plan to sell in less than six or seven years, a 5/1 ARM could be a smart choice.
Bottom line. Refinancing an ARM to a fixed-rate mortgage can be a wise investment in your financial future, potentially saving you thousands in lower monthly mortgage payments over the life of the loan. Not only that, you'll be spared the uncertainty and stress that may accompany a fluctuating mortgage rate.
If you don't plan to sell or refinance before those first five years are up, the 30-year fixed may be the better choice. Although, if you sell or refinance your mortgage within say seven or eight years, the 5/1 ARM could still make sense given the savings realized during the first five years.
Pros include low introductory rates and flexibility; cons include complexity and the potential for much bigger payments over time.
An ARM has four components: (1) an index, (2) a margin, (3) an interest rate cap structure, and (4) an initial interest rate period.
A 7/1 ARM is a mortgage that has a fixed interest rate in the beginning, then switches to an adjustable or variable one. The 7 in 7/1 indicates the initial fixed period of seven years. After that, the interest rate adjusts once yearly based on the index stated in the loan agreement, plus a margin set by the lender.
Interest-only loans
Pros: The payments are made toward interest only every month and are smaller than principal and interest payments would be in a fully amortized loan. Borrowers do not need to worry about making larger payments and can focus on stabilizing their financial situation instead.
An 80/20 loan was a type of piggyback loan, which is a home loan that's split into two parts. It's called an 80/20 loan because the first part is a mortgage that covers 80% of the home purchase price. The second part is either a home equity loan or a home equity line of credit that covers the remaining 20%.
A 7/6 ARM is an adjustable-rate loan that carries a fixed interest rate for the first 7 years of the loan term, along with fixed principal and interest payments. After that initial period of the loan, the interest rate will change depending on several factors.
A. VA will provide advances to contractors and grantees at the minimum amounts needed for the actual, immediate cash needs in executing the contract or grant agreements.
1. How much is the guaranty? VA will guarantee up to 50 percent of a home loan up to $45,000. For loans between $45,000 and $144,000, the minimum guaranty amount is $22,500, with a maximum guaranty, of up to 40 percent of the loan up to $36,000, subject to the amount of entitlement a veteran has available.
No, you cannot currently get a VA loan with a 40-year mortgage term. According to guidance from the Department of Veterans Affairs, the maximum VA home loan term is 30 years and 32 days; however, the term may never be for more than the remaining economic life of the property as determined by the appraisal.
Another con of an ARM is that your loan terms and interest rate may at first be more lenient because of the lower monthly payments. So, if you want to refinance down the line into a fixed rate, it could be difficult to get approved for the same size mortgage loan.
Making additional principal payments will shorten the length of your mortgage term and allow you to build equity faster. Because your balance is being paid down faster, you'll have fewer total payments to make, in-turn leading to more savings.
Okay, you probably already know that every dollar you add to your mortgage payment puts a bigger dent in your principal balance. And that means if you add just one extra payment per year, you'll knock years off the term of your mortgage—not to mention interest savings!