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. Indexed ARM

    An adjustable-rate mortgage on which the interest rate adjusts ...
  2. Discretionary ARM

    An adjustable-rate mortgage on which the lender has the right ...
  3. Initial Interest Rate

    The interest rate that is initially assessed on an adjustable-rate ...
  4. Teaser Rate

    An initial rate on an adjustable-rate mortgage (ARM). This rate ...
  5. Mortgage Index

    The benchmark interest rate an adjustable-rate mortgage's fully ...
  6. Interest Rate Cap Structure

    Limits to the interest rate on an adjustable-rate loan - frequently ...
Related Articles
  1. Credit & Loans

    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. Credit & Loans

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  3. Home & Auto

    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. Credit & Loans

    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. Options & Futures

    This ARM Has Teeth

    Find out how to avoid getting bitten when your mortgage rate resets.
  6. Options & Futures

    Subprime Is Often Subpar

    Proceed with caution when considering these short-term, high-interest mortgages.
  7. Credit & Loans

    Millennials Guide: How to Pick the Right Mortgage

    Here’s help in finding the perfect, affordable loan for that home you have been dreaming about.
  8. Home & Auto

    5 Risky Mortgage Types To Avoid

    There are plenty of ways to end up with a bad mortgage. The risks of these five should make every homebuyer think twice before signing.
  9. Stock Analysis

    3 Growth Opportunities For ARM Holdings

    ARM Holdings highlighted several growth opportunities in its most recent roadshow presentation. Here are three of the large opportunities it talked about.
  10. Home & Auto

    4 Reasons Not To Refinance Your Home

    Interest rates are still extremely low, but they aren't expected to stay there for long. Should you refinance before it's too late? Not necessarily.
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. 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 >>
  3. 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 >>
  4. What is a subprime mortgage?

    A subprime mortgage is a type of loan granted to individuals with poor credit histories (often below 600), who, as a result ... Read Answer >>
  5. What are the pros and cons of a simple-interest mortgage?

    Learn the difference between a simple interest mortgage and a standard mortgage, along with their relative advantages and ... Read Answer >>
  6. How do you make working capital adjustments in transfer pricing?

    Understand how working capital adjustments are applicable to transfer pricing. Learn about the arm's length standard and ... Read Answer >>
Hot Definitions
  1. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  2. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  3. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  5. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  6. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
Trading Center