Home Mortgage: Hybrid ARM

When it comes time to get a home mortgage, it seems as though the options are endless. There are several home loan options to choose from, and even today some options, like a hybrid ARM, may seem attractive. However, before commiting yourself to a home mortgage, it is important to sit down an do a little financial planning--looking at your finances and re-establishing your financial goals. You may find that a hybrid ARM isn't such a great deal after all.

What is a hybrid ARM home mortgage?

You've probably heard of an adjustable rate mortgage (ARM). But a hybrid ARM? Basically, a hybrid ARM combines some features of a fixed mortgage with an ARM. You get your home loan at a fixed rate for a specific amount of time (anywhere from three years to ten years--seven years is rather common) and then your rate switches to an adjustable rate that floats with the market. In many cases, a hybrid ARM offers a lower initial rate than a straight-out fixed mortgage. But is this worth the cost if a few years down the road you are suddenly faced with an interest rate increase?

The hybrid ARM and other home mortgage options

Over the long haul, especially if you plan on staying in your home for quite some time, a fixed mortgage is usually your best option. You don't have to worry about fluctuating payments, and you generally will save thousands of dollars. Once your fixed term on the hybrid ARM is up, you are stuck with higher, variable payments. Unless you refinance. Which you should do whenever you are faced with an adjustable rate mortgage. Also, once your fixed term is up on the hybrid ARM, your equity accumulation will begin to slow.

However, the hybrid ARM is a better home loan option than, say, an interest only home loan. The hybrid ARM will allow you build equity throughout. When you have an interest only home loan, you find that the lower interest rates rarely come close to making up for the complete lack of equity and the brutal balloon payments that come when the initial term is over. Additionally, the hybrid ARM is superior to a straight ARM, as it gives you some stability time to get established before the variable rate kicks in. This can be especially important to first-time homebuyers.

The bottom line is that you need to be carefull when choosing a home mortgage option. If you are just starting out, or if you do not plan on staying in a particular home for a while, a hybrid ARM can be quite helpful. Many people are able to afford a home loan due to the lower interest rates offered. However, you should be aware of the risk, and you should carefully consider your options. Some people find a rather rude awakening down the road.

For more information (and two opposing views) on the hybrid ARM, read Jane Bryant Quinn's Newsweek column and Greg McBride's article on Bankrate.com.


home loan, personal finance, financial planning, adjustable rate mortgage,
financial goals, home mortgage, hybrid ARM, interest only home loan