Are you going to buy a home with a near certainty that you will be moving in a fairly short period of time?
If so, then one of the hybrid adjustable rate programs may suit your needs perfectly. There are a number of adjustable rate options including a 3, 5, 7 and 10 year loan periods. With the hybrid loan, the rate is fixed for a set amount of time and does not go up until you reach the end of that period.
Because of market conditions, it has basically priced the 3/1 hybrid out. It appears there is not much investor appetite for this term, since most often the pricing is worse than the 30 year fixed pricing.
However, depending on how long you expect to remain in your home, the 5, 7 and 10 year hybrid ARMs are often from slightly to significantly better than the fixed rate. Right now you can expect to see about a 1/2% better rate for the 5/1 hybrid over a 30 year fixed rate, although that changes constantly with the market.
Additionally, the 10/1 or 7/1 hybrid ARM may be the loan of choice for jumbo purchases (over $417,000 loan amount) because it can be significantly lower interest rate than the comparable fixed rate. The 10 year adjustment period also means fairly good stability, since the majority of people either refinance or move within that time frame.
Although hybrid loans generally have lower rates they are not usually enough that you would want to use them unless you know you will be moving. The risk to you may be sizable because once the rate term expires there is a good chance that the rate could jump, sometimes to the maximum allowable.
Without an income that can support the jump in the rate the hybrid is not the right choice, especially if your debt load has also increased during the fixed rate period. Having some cash reserves would be an excellent consideration when going with this type of loan program.
This is why you need a trusted advisor when choosing your home loan. Give me a call today at Guild Mortgage, 360-675-6106/541-221-3455 cell or send me an e-mail. Let’s discuss your options. For more information about conventional fixed, FHA, VA and USDA loan products check the link on the name.
About the author: Fred Chamberlin is a senior loan officer with Guild Mortgage Company in Oak Harbor. He has been in the mortgage origination business for over 20 years and in the lending business for over 30 and authors a number of mortgage related blogs.