Hybrid ARM? A hybrid ARM starts with a fixed-rate period and then adjusts periodically. Common types include 5/1, 7/1, and 10/1 ARMs. They offer lower initial rates than fixed-rate mortgages for buyers who plan to sell or refinance before the fixed period ends.
Types of Hybrid ARMs
The first number in a hybrid ARM name is the fixed-rate period in years. The second is the adjustment frequency. A 5/1 ARM locks your rate for 5 years then adjusts once per year. A 7/1 ARM gives you 7 years fixed, and a 10/1 ARM gives you 10 years fixed. There are also 3/1 ARMs and other variations.
Longer fixed periods have higher initial rates but provide more stability. A 10/1 ARM will have a rate closer to a 30-year fixed rate, while a 5/1 ARM offers a bigger discount upfront. Choose the fixed period based on how long you expect to stay in the home.
How a Hybrid ARM Works
During the fixed period, your rate and payment stay the same. When the fixed period ends, the loan begins adjusting according to the terms. Each adjustment recalculates your rate using the current index plus your margin, subject to the periodic and lifetime caps.
Patrick Kevin Fagan sees hybrid ARMs as an excellent option for many San Antonio homebuyers, especially first-time buyers who expect to move up within a few years or military families who may relocate before the fixed period ends.
