hybrid mortgage

Hybrid Mortgage

An adjustable-rate mortgage in which the interest rate is locked for a rather long period of time. That is, the interest rate is locked for a certain period, often seven years, at which point it may move either upward or downward. Many hybrid mortgages have interest rate caps to offer further protection to the mortgage holder. The initial interest rate on a hybrid mortgage is often lower than market rates, but it carries the risk that after a certain number of years the interest rate will rise to a point resulting in payments that the mortgage holder will not be able to afford.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

Hybrid mortgage.

Sometimes called an intermediate ARM, a fixed-period ARM, or a multiyear mortgage, a hybrid mortgage combines aspects of fixed-rate and adjustable-rate mortgages.

The initial rate is fixed for a specific period -- usually three, five, seven, or ten years -- and then is adjusted to market rates. The adjustment may be a one-time change, or more typically, a change that occurs regularly over the balance of the loan term, usually once a year.

In many cases, the interest rate changes on a hybrid mortgage are capped, which can help protect you if market rates rise sharply.

One advantage of the hybrid mortgage is that the interest rate for the fixed-rate portion is usually lower than with a 30-year fixed-rate mortgage. The lower rate also means it's easier to qualify for a mortgage, since the monthly payment will be lower.

And if you move or refinance before the interest rate is adjusted -- the typical mortgage lasts only seven years -- you don't have to worry about rates going up.

However, some hybrid mortgages carry prepayment penalties if you refinance or pay off the loan early. While prepayment penalties are illegal in many states, they are legal in others.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

hybrid mortgage

A mortgage that combines the benefits of an adjustable-rate mortgage and a fixed-rate mortgage,such as adjustable rates in the early years and then an automatic conversion to fixed rates after a stated period of time.For example,the 5/25 (adjustable for 5 years and fixed for 25) and the 7/23.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
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