Jan

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5 Year Fixed Rate Hybrid Mortgage

Filed Under mortgage 

A mortgage program in which the interest rate remains the same for the initial 5 years. At the end of the fifth year, the mortgage turns into an Adjustable Rate Mortgage for the remainder of the loan term. Payments of most 5-Year Fixed Rate Hybrids are amortized for 30 years.

This loan program is named “5/1 Hybrid” because it starts out as a Fixed Rate Mortgage (FRM), then changes to an Adjustable Rate Mortgage (ARM). For this reason, it is also commonly refereed to as the “5/1 ARM”.

This is also called a 5/1 ARM meaning that the rat is fixed for the first 5 years and adjusts 1 a year every year after that. When the adjustment period begins there is a cap for how much the rate can adjust in the first year, and each year after that. These loans also have a cap for the life of the loan as well as a floor rate, which is the lowest rate the loan could ever have.

The hybrid or ARM loans are a great option to save money on your monthly payment especially when used in the right situations. If you plan on moving within the next 5 years, there is no reason to obtain a higher rate mortgage that is fixed for the life of the loan instead of a 5 year fixed rate loan.

In most cases, mortgage rates are higher when the “fixed” period is longer. In other words, a 30-Year Fixed Rate mortgage usually carries an interest rate higher than a 5-Year Fixed Hybrid (5/1 ARM). For home buyers who do not intend to keep their mortgages for more than 5 years, a 5/1 ARM is usually a smarter choice because of its lower initial interest rate.

Is your rate too high? If you're looking to compare mortgage rates or to get a rate quote on a FHA loan start here


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