Hybrid ARMs

Hybrid ARMs have fixed and adjustable features that usually start out as fixed for a set period of time.

5/1 ARMs carry a fixed rate for the first five years before becoming ARMs.

3/1 ARMs carry a rate that is fixed for the first three years of the loan, after which point they become ARMs.

It is important to understand the difference between Adjustable Rate Mortgages and Fixed payment mortgages. In and ARM, the interest rate will be fixed during the initial period so you will always be paying at least the interest each month. Fixed payment mortgages will have a fixed payment for the initial period, but the interest will fluctuate and you may not be paying the interest due on your loan each month.

Many people buy homes planning to only live there a few years.
In this case a hybrid ARM makes the most sense due to its low starting interest rate.

Hybrid ARMs are beneficial to investors who are obtaining a mortgage on a property they intend to resell within a short period of time.
The decreased starting interest rate frees monthly cash flow that can be used for rennovation, landscaping, etc.