Hybrid Arm

A hybrid ARM is a type of mortgage that starts out with a fixed interest rate and then eventually converts into an adjustable mortgage. This type of mortgage combines aspects from both the adjustable-rate mortgage and the fixed-rate mortgage.

At the beginning of this type of loan, there will be a certain amount time when the borrower will be able to take advantage of a fixed interest rate. For example, the borrower might get five years of a low fixed interest rate. After that point, the loan is converted into an adjustable-rate mortgage that will fluctuate up and down based on a financial index. When this occurs, it is known as the reset date.

This type of mortgage can be beneficial for those who are not planning on staying in a property for many years. They can take advantage of the low, fixed rate that will be lower than most 30-year fixed-rate mortgages. However, if you are planning on living in the house for many years, it could end up costing you more money in interest in the long run. If the market interest rate increases substantially, you could be left with a large mortgage payment for the majority of your loan.

For more info, read What Is an Adjustable-Rate Mortgage?