5-1 Hybrid Adjustable-Rate Mortgage - 5-1 Hybrid ARM

What is the '5-1 Hybrid Adjustable-Rate Mortgage - 5-1 Hybrid ARM'

The 5-1 hybrid adjustable-rate mortgage (5-1 Hybrid ARM) is an adjustable-rate mortgage (ARM) with an initial five-year fixed-interest rate. After this initial five-year period, the interest rate begins to adjust on an annual basis according to an index plus a margin (or, the fully indexed interest rate). The speed and the extent to which the fully indexed interest rate can adjust are usually limited by an interest rate cap structure. There are several different indexes that the fully indexed interest rate might be tied to. While the index is variable, the margin is fixed for the life of the loan.

Also known as a "five-year fixed-period ARM".

BREAKING DOWN '5-1 Hybrid Adjustable-Rate Mortgage - 5-1 Hybrid ARM'

There is little probability that the fully indexed interest rate might be lower than the initial fixed interest rate on a 5-1 ARM. The more likely scenario is that the fully interest rate will be higher, leading to an increase in the monthly payment amount beginning in year six.

Depending on the slope of the yield curve, a 5-1 ARM can have an interest rate advantage over a 30-year fixed-rate mortgage. Most borrowers who choose a 5-1 ARM intend to refinance or move before the expiration of the fixed interest rate period. There is some risk in this scenario, because personal finances or general market conditions might make moving or refinancing difficult, or even impossible, five years in the future.

RELATED TERMS
  1. 5-6 Hybrid Adjustable-Rate Mortgage ...

    An adjustable-rate mortgage with an initial five year fixed interest ...
  2. Fixed-Period ARM

    An adjustable-rate mortgage (ARM) with an initial fixed-interest-rate ...
  3. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
  4. Indexed ARM

    An adjustable-rate mortgage on which the interest rate adjusts ...
  5. Hybrid ARM

    A hybrid adjustable-rate mortgage blends the characteristics ...
  6. Indexed Rate

    An interest rate charged on loans to borrowers that is calculated ...
Related Articles
  1. Managing Wealth

    The Best Candidate For an Adjustable Rate Mortgage

    Adjustable-rate mortgages aren't for everyone, but they make sense if you are a short-term homeowner or can pay off the loan before it readjusts.
  2. Personal Finance

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  3. Personal Finance

    Mortgages: Fixed Rate Versus Adjustable Rate

    Choosing the right mortgage can help homebuyers avoid costly mistakes. Learn the difference between fixed- and adjustable-rate loans.
  4. Managing Wealth

    Adjustable Rate Mortgage: What Happens When Interest Rates Go Up

    Adjustable rate mortgages can save borrowers money, but they can't go into it blind. In order to benefit from an ARM, you have to understand how it works.
  5. Investing

    This ARM Has Teeth

    Find out how to avoid getting bitten when your mortgage rate resets.
  6. Markets

    How Interest Rates Work On A Mortgage

    A step-by-step explanation of the interest calculations, mortgage types, and how the loan is eventually "retired" – which means paid off.
  7. Personal Finance

    Mortgage Faceoff: Bank of America Vs. Wells Fargo

    Which bank offers the better mortgage deal? Here's how they compare on two popular types of mortgage.
  8. Investing

    Subprime Is Often Subpar

    Proceed with caution when considering these short-term, high-interest mortgages.
  9. Personal Finance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  10. Personal Finance

    How Interest Rates Affect the Housing Market

    Understand how rate changes can affect home prices and learn how you can keep up.
RELATED FAQS
  1. What is the difference between a 2/28 and a 3/27 ARM?

    An adjustable rate mortgage (ARM) is a type of mortgage that has a fixed interest rate for a certain time period at the beginning ... Read Answer >>
  2. Is an adjustable rate mortgage (ARM) safe?

    Learn why an adjustable rate mortgage (ARM) can be a safe option as long as the borrower is familiar with the underlying ... Read Answer >>
  3. Why is the Arms Index (TRIN) important for traders?

    Learn more about the Arms Index, or TRIN, and how traders and chartists use the Arms to measure market volatility and trading ... Read Answer >>
  4. What are the different types of subprime mortgages?

    Clarify your understanding of subprime mortgages. Learn about the different types, how they work and when they might be beneficial. Read Answer >>
  5. How is the Arms Index (TRIN) calculated?

    Read how to calculate the Arms Index, or TRIN, using the ratio and volume of advances and declines in any given stock index ... Read Answer >>
  6. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ... Read Answer >>
Trading Center