Hybrid mortgages are becoming the ?loan of choice? for increasing numbers of borrowers, it was revealed in the 22nd Annual Adjustable-Rate Mortgage (ARM) Survey, conducted by Freddie Mac, a major buyer of existing home mortgages. A hybrid mortgage is basically an ARM loan but offers a fixed interest rate for a specified number of initial years before reverting to a one year adjustable rate for the remaining years of its 30-year term. It's a viable way to obtain a low interest mortgage with the assurance the interest rate will not rise for a number of years.
?Over the past several years, annually adjusting ARMs with an initial fixed-rate period of more than one year, known as hybrid ARMs, have grown in popularity,? the recently released Freddie Mac report stated. ?Most of these special ARM loans have an initial fixed-rate period of five years ? known as 5/1 ARMs. They have been the dominant choice of consumers. Last year (2005) two-in-five ARM loans were 5/1 hybrids.?
The average initial interest rate on 5/1 ARMs has been about 5.8 percent in recent months, according to the survey report. That's about 0.58 percentage points above the rate on traditional 1-year ARMs, and 0.19 percentage points below the rate on a 30-year fixed-rate mortgage.
?A 5/1 hybrid ARM provides the consumer with the comfort of knowing the interest rate will be fixed over the first five years of the loan,? said Frank Nothaft, Freddie Mac's vice president and chief economist. ?This product has been particularly popular with families who plan to have the mortgage for five years or less.?
