Hybrid Loans

Mortgage rates have reached extreme lows in recent years. These lows are causing many people to consider refinancing for a loan with even lower interest rates. If you are one of these people, you may want to think about a Hybrid Loan.
What is a Hybrid Loan?
A hybrid loan is a mix between a fixed rate and an adjustable-rate mortgage. With this hybrid or "two step" loan, you can enter into your agreement with an even lower fixed rate.
Hybrid loans begin with extremely low fixed mortgage rates, giving you minimum interest on your monthly payments for about five to seven years. After this specified time, your loan changes to an adjustable rate mortgage. Your mortgage rates change according to the current market interest rates.
Should you consider a Hybrid?
Since the fixed rate portion is even lower than other mortgages, a hybrid mortgage looks great in the beginning. However, it is important to understand that the adjustable-rate portion of the mortgage is likely going to raise your monthly interest as the market rates eventually go up. In order to prevent an unruly jump in your adjustable mortgage rate, you can opt for a loan with an interest cap.
Refinancing your Hybrid Loan
Some people sign on to hybrid loans if they plan to move before the adjustable-rate kicks in, or if they intend on refinancing their mortgage at a lower rate for the second phase. Whether you choose to take this "two-step" approach or go with a more standard fixed mortgage, make sure you research the terms before you sign.

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