Hybrid Adjustable-Rate Mortage (ARM)

What is a Hybrid Adjustable-Rate Mortgage (ARM)?

A hybrid adjustable-rate mortgage (also known as an intermediate ARM or multiyear mortgage) is a type of home loan that combines features of both adjustable-rate and fixed-rate mortgages.

The loan will have an initial rate that’s fixed for a set period; after that, it floats. During the fixed rate period, the payment (principal and interest) remains the same. Once the fixed interest rate expires, the interest rate changes based on an index and a margin. The date at which the mortgage shifts from a fixed-rate to an adjustable-rate is known as the reset date. There’s also an interest rate cap that limits the amount by which the rate can change.

For instance, a 7/1 ARM refers to a mortgage that has a fixed-interest-rate period of 7 years. After seven years, every year (the “1”) the interest rate may adjust. The loan will have a margin that dictates how much the rate can change each year, and a cap to keep the rate from changing too high. During the variable period, the mortgage uses one of several standard rate indexes to set the interest rate; the margin is added to the interest rate in effect at the reset date.

At Del Norte Credit Union, we offer lower interest rates to homeowners looking to buy a home in Northern New Mexico. We have options that will suit the time frame you expect to remain in the house.

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Why a Hybrid ARM Might Be Right for You

Initial low interest - The initial, fixed-rate portion of an ARM offers lower interest rates, and it may be easier to qualify for a mortgage because monthly payments will be lower.

Flexibility -Hybrid ARMs are an excellent choice if your life is likely to change in the next few years, especially if you don’t plan to stay in your house long.

Safer – This type of loan has interest rate caps and payment caps, making it much safer than a traditional ARM. Interest rate caps limit how much your interest can rise during the reset date and over the loan’s lifetime. Payment caps limit how much your payment could grow when the rate adjusts.

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Why a Hybrid ARM Might Be Wrong for You

Not Planning for Change – You plan to stay in your house long-term.

Payment Variability – If you do not have a budget in place to prepare for higher interest rates after the fixed rate period ends.

Get in Touch with Us Today

The experts at DNCU are always ready to help clients in Los Alamos, Española, Santa Fe, White Rock, and Northern New Mexico with their homeownership journey. We want the process of getting a mortgage to be as easy as possible, and you can trust us to help you make this huge decision. Get in touch with us today to learn more about whether a Hybrid ARM is right for you.

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