Understanding the Hybrid Loan

A hybrid loan is a crossbreed loan that combines parts of a fixed-rate and adjustable-rate mortgages. They are often called a fixed-period ARM. These loans start with a fixed interest rate for a certain length of time (often 5,7 or sometimes 10) and then convert to an ARM. 

The interest rate during the fixed interest rate period is often much lower than ones of 30-year mortgages. As a result of this, the loan allows borrowers to buy a lot more home than they can afford, but are at a greater risk. Before considering a hybrid loan, pay attention to the terms, fees and prepayment penalities. You could end up paying considerably more than the current rate of interest. 

People often choose these loans because of the low fixed interest rate in the beginning is cheaper and more affordable than many othe rmortgage options. For those who only plan to stay in a home for a short amount of time before moving to another, this loan option could be an excellent choice to save money.



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