Monday, June 26, 2006

The Hybrid Loan

Recently we discussed the differences between fixed-rate mortgages and adjustable rate mortgages (ARM’s). We explained how both loan programs typically span from 15-30 years in length, and went over some key advantages of each. If a mortgage loan has a fixed interest rate, the interest rate will remain at its initial level for the life of a loan, which is a popular choice for borrowers today considering that interest rates are on the rise. With an adjustable mortgage rate, lenders can get you out the door with a fantastic initial interest rate, as long as you are okay with some payment changes in the future.

Many people, however, don’t feel comfortable with being locked into a long-term loan. If this is the case, there is a mortgage program offered by lenders that is based on a short-term contract and offers an array of benefits. It is called the hybrid loan.

Hybrid loans combine the features of fixed-rate and adjustable-rate mortgages. With this kind of loan program, the initial interest rate remains fixed for a set amount of time, and then converts to the ARM. Hybrid loans are perfect for people who do not plan on owning their home for very long or for those who just aren’t satisfied with choosing between fixed and adjustable-rate mortgages.

Typically, the interest rate will be fixed for three, five or seven years, then will adjust either annually or bi-annually for the remainder of the contract. As always, the interest rate on your loan, whether it’s a fixed-rate, ARM or hybrid, will be determined by the lender.

We recommend sitting down with a mortgage loan consultant and discussing the details of each type of loan and how they could benefit you when deciding what plan best suits you and your family.

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