DEFINITION of 'Hybrid ARM'

A hybrid adjustable-rate mortgage blends the characteristics of a fixed-rate mortgage and a regular adjustable-rate mortgage. This type of mortgage will have an initial fixed interest rate period followed by an adjustable rate period. After the fixed interest rate expires, the interest rate starts to adjust based on an index plus a margin. The date at which the mortgage changes from the fixed rate to the adjustable rate is referred to as the reset date.

Also known as "fixed period ARMs".

BREAKING DOWN 'Hybrid ARM'

A borrower should carefully consider his or her time horizon when choosing a hybrid arm and recognize the risks associated with the reset date, or the expiration of the fixed interest rate period. If there has been a large change in interest rates, this reset could create substantially large payments; however, typically the amount by which the interest rate can adjust is subject to an interest rate cap.

RELATED TERMS
  1. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
  2. Discretionary ARM

    An adjustable-rate mortgage on which the lender has the right ...
  3. 5-6 Hybrid Adjustable-Rate Mortgage ...

    An adjustable-rate mortgage with an initial five year fixed interest ...
  4. 5-1 Hybrid Adjustable-Rate Mortgage ...

    An adjustable-rate mortgage (ARM) with an initial five-year fixed-interest ...
  5. Variable Rate Mortgage

    A type of home loan in which the interest rate is not fixed. ...
  6. Initial Interest Rate

    The interest rate that is initially assessed on an adjustable-rate ...
Related Articles
  1. Personal Finance

    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.
  2. Insights

    How Interest Rates Affect the Housing Market

    Understand how rate changes can affect home prices and learn how you can keep up.
  3. Personal Finance

    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.
  4. Personal Finance

    This ARM Has Teeth

    Find out how to avoid getting bitten when your mortgage rate resets.
  5. Personal Finance

    Shopping for a Mortgage in 2017? Use This Tool First

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2017 can all be done online.
  6. Personal Finance

    5 Things You Shouldn't Tell Your Mortgage Broker

    Applying for a mortgage can be a strenuous process. Here are five things to avoid doing when meeting with your mortgage broker.
  7. Personal Finance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  8. Investing

    Subprime Is Often Subpar

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

    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.
RELATED FAQS
  1. 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 >>
  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. 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 >>
  4. 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