Hybrid ARM mortgages, also called fixed-period ARMs, combine features of both fixed-rate and adjustable-rate mortgages. A hybrid loan starts out with an interest rate that is fixed for a period of years (usually 3, 5, 7 or 10). Then, the loan converts to an ARM for a set number of years. An example would be a 30-year hybrid with a fixed rate for seven years and an adjustable rate for 23 years.
The beauty of a fixed-period ARM is that the initial interest rate for the fixed period of the loan is lower than the rate would be on a mortgage that's fixed for 30 years, sometimes significantly. Hence you can enjoy a lower rate while having period of stability for your payments. A typical one-year ARM on the other hand, goes to a new rate every year, starting 12 months after the loan is taken out. So while the starting rate on ARMs is considerably lower than on a standard mortgage, they carry the risk of future hikes.
Homeowners can get a hybrid and hope to refinance as the initial term expires. These types of loans are best for people who do not intend to live long in their homes. By getting a lower rate and lower monthly payments than with a 30- or 15-year loan, they can break even more quickly on refinancing costs, such as title insurance and the appraisal fee. Since the monthly payment will be lower, borrowers can make extra payments and pay off the loan early, saving thousands during the years they have the loan.
All loan approvals are conditional, not guaranteed and subject to lender review of all information. Loan is conditionally approved when lender has issued approval in writing, but until all conditions are met, loan cannot be funded. Specified rates may not be available for all borrowers. Rate subject to change with market conditions. C2 Financial Corporation is an Equal Opportunity Mortgage Broker/Lender. In California, This licensee is performing acts for which a real estate license is required. C2 Financial Corporation is licensed by the California Bureau of Real Estate, Broker # 01821025; NMLS # 135622. For state licensing information outside of California, click here. C2 Financial Corporation is approved to originate VA and FHA loans, and has the ability to broker such loans to VA and FHA approved lenders. C2 Financial Corporation is not acting on behalf of or at the direction of HUD/FHA or the VA.