How to Get a Hybrid Loan
What it is
A hybrid loan is two step mortgage that acts like a fixed mortgage, but actually converts to an adjustable rate mortgage later on. With this type of loan, a borrower locks into a set interest rate that is lower than the rate on a typical 30-year fixed mortgage for a predetermined period. After the predetermined period is up, the rate can change every year after. Because the initial rates are low, chances are that the rate will have increased by the time the predetermined term comes to an end. Depending on the length of the mortgage, some buyers will end up spending more than they would have on a traditional 30-year term mortgage.
The most popular hybrid loan is the five-year hybrid. Rates for this loan are usually around five or one percent lower than the rate on the 30-year fixed mortgage. This type of loan can lead to significant savings. For instance, many owners will save $66 a month for each percentage point of interest dropped on every $100,000 borrowed. This would save a borrower with a $300,000 mortgage roughly $2,376 in the first year.
Who it's for
Even if interest rates for 30-year fixed mortgages are sitting at record lows, homeowners may still look for the savings that a hybrid loan can offer. Hybrid loans are for people who plan to dump the mortgage before the adjustable rate kicks in. This usually refers to people who plan to move or refinance at a lower rate. Borrowers still should pay close attention to the hybrid loan's conditions.
What you need to do to apply
In order to obtain a hybrid loan, interested applicants will need to contact a local lending institution and inquire about the different options and rates available. Personal and financial history, including a credit report, will need to be made available to the lending institution. A property appraisal may also be required.
