Beat Current Interest Rates with a Hybrid Mortgage

By Karen Lawson
Loan Page Columnist

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A hybrid mortgage can be the answer to rising interest rates. If you plan to sell your home or refinance after the initial fixed interest term of a hybrid loan, it's possible to save money on interest.


How Does a Hybrid Home Mortgage Loan Work?

A hybrid mortgage loan is structured with an initial period of fixed-rate payments. Lenders often refer to hybrid loans as 3/1, 5/1, 7/1, and so on. The first number represents the number of years the loan will have a fixed rate. The second number represents how often the interest rate will adjust after the fixed rate term ends.

For example, if you are considering a 5/1 hybrid loan, the first five years of your mortgage term will have a fixed rate, which is generally lower than the interest rate of a 30-year fixed-rate loan. After the initial five years of your mortgage term, your hybrid loan will convert to an adjustable-rate mortgage, with interest adjusting every year.

Hybrid Loans Can Assist Recent Graduates

When shopping for a new home loan, you'll need to have some idea of your future plans and of your attitude toward financial risk. As regional markets and interest rates change, your home's value and payment amounts can also change.

If you've just finished college or professional school and expect your earnings to increase significantly, a hybrid loan can help you get a new home loan with lower payments for the first few years. When your initial fixed rate term ends, your loan payments will increase according to the terms specified in your mortgage. The initial period of lower payments can provide time to establish your career, repay student loans, and plan for the future while you enjoy the benefits of homeownership.

About the Author Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She earned an MA degree in English from the University of Nevada, Reno.

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