Hybrid adjustable rate mortgages?

Anyone know anything about these?Hybrid adjustable rate mortgages?
It's basically the same thing as a regular adj. rateHybrid adjustable rate mortgages?
The 1-year ARM is a mortgage in which the rate is set for one year and then adjusts every year thereafter, not willy-nilly, but with standards and restrictions based on indexes and margins. A hybrid ARM is one with a longer term introductory period - three, five, seven, even ten years during which the rate remains at its original level and then adjusts every year thereafter. Borrowers, particularly those who will be stretching to make payments often choose an ARM because the lower payments for the first year or first five years allow them to qualify for a mortgage.





A 5/1 ARM is a hybrid mortgage. A typical adjustable-rate mortgage resets annually. A 5/1 ARM has a fixed interest rate for the first five years before it adjusts to a new rate based on the short-term interest rate it is priced on and the pricing spread.





Lenders like adjustable-rate mortgages because they shift interest rate risk to the borrower. The hybrid ARM allows the borrower to get a lower interest rate than a 15-year or 30-year fixed-rate mortgage because the borrower accepts the interest rate risk after the initial fixed-rate period.





Like I mentioned Hybrid ARMS are available as 3/1, 5/1, 7/1 and sometimes even as 10/1 structures. They can benefit the borrower if the borrower doesn't expect to be in the home much longer than the fixed-rate period. So the lender and the borrower can get to win-win by setting an initial fixed-rate period that suits the borrower..








Your ability to refinance a 5/1 ARM depends on where interest rates are at that point in time and the cost of refinancing, including whether there's a prepayment penalty. It would be pretty unusual for a prepayment penalty to go out past three years, but the loan agreement would spell that out upfront.





In general, you shouldn't go into a 5/1 ARM with the idea that you'll be able to refinance at a lower rate down the line. We're at the end of a period of Fed easing, and the Federal Reserve has already started a cycle of tightening, which means rates are going up. What its mindset will be three to five years from now nobody knows, but counting on refinancing to be advantageous during the fixed period of a 5/1 hybrid ARM doesn't make sense








Take a look at this web site:


http://www4.law.cornell.edu/uscode/html/鈥?/a>





From the U.S. Code Collection: TITLE 38 %26gt; PART III %26gt; CHAPTER 37 %26gt; SUBCHAPTER I %26gt; 搂 3707A





搂 3707A. Hybrid adjustable rate mortgages





Hope this helps answer some of your questions.
In an effort to make the new home loan more affordable for homeowners, the industry has begun extending the mortgage amortization period. The traditional roof of this period has been the 30-year home loan. Now, 40- and 50-year hybrid loans are becoming common mortgage products. But there are some drawbacks.





Mortgage lenders operate under the business axiom that it is much cheaper to keep their existing customers than to acquire new ones. As the real estate market begins a cooling-off period, lenders are expanding their loan options for current borrowers to increase their cash flow. Enter the hybrid loan. 40- and 50-year mortgages are basically hybrid loans in spirit. Hybrid loans are a combination of fixed- and adjustable-rate mortgages that usually make the respective transformation after a seven-year period. The basic idea behind this arrangement is that by stringing out the amortization over a longer period of time, the monthly payments will be lower. The hybrid loan holds some unique benefits for borrowers that you should be aware of.





Characteristics of Hybrid Home Loans


禄 More Homeowners Qualify. Due to the lower monthly payments of 40- and 50-year hybrid loans, a greater slice of customers can be included in the program that were unable to qualify under traditional loans.


禄 Building Equity. Because hybrid loans take a longer time to amortize, homeowners have the chance to build limited equity in their properties.


禄 ARM Procrastination. Lenders expect the loans to be popular with homeowners who are concerned about fast-moving adjustable rates.


The downside to the hybrid loan, and any type of specialized loan option, is that theres always a catch. Before you run off to your banking institution with hybrid loan fever, you need to know how these loans can play out in a worst-case scenario.








Beware of these Hybrid Loan Drawbacks


禄 Higher Risk. The longer the loan type, the more opportunity there is to default. In many cases, the fixed-rate turns adjustable before the owner can build up enough equity in the property.


禄 Limited Savings. The upfront costs of obtaining a hybrid loan are not that appealing. The loan should only be utilized to qualify for a mortgage that the homeowner might not otherwise be eligible for.


As with any loan, you should gauge your current financial situation and needs. Talk with your lender and let them explain the hybrid home loan in full before you make a decision.





Chris M Diaz


loan Consultant
Do you have a specific question?





Good first answer. This adds another twist as I imagine you are really asking about a Pay Option ARM. They go by different names, but basically, you are offered four different payments to make each month:





1. 15 year amortized at the full interest rate.


2. 30 year amortized at the full interest rate.


3. 30 year interest only at the full interest rate.


4. 30 year interest only at the start rate.





This is a very dangerous loan. Make sure you educate yourself on it before applying for one. In the end, many borrowers make the #4 payment and end up with negative amortization.





Best of luck