A hybrid ARM has an initial fixed rate that lasts for a set number of years (usually three, five, seven or 10), then adjusts annually thereafter. A traditional ARM typically has its first rate adjustment after one year. The “hybrid” refers to the blend of fixed rate and adjustable rate characteristics found in hybrid ARMs.
Hybrid ARMs often are advertised as 3/1 or 5/1 ARMs–you might also see ads for 7/1 or 10/1 ARMs. These loans are a mix–or a hybrid–of a fixed-rate period and an adjustable-rate period. The interest rate is fixed for the first few years of these loans–for example, for 5 years in a 5/1 ARM. After that, the rate may adjust annually (the 1 in the 5/1 example), until the loan is paid off. In the case of 3/1 or 5/1 ARMs
- the first number tells you how long the fixed interest-rate period will be and
- the second number tells you how often the rate will adjust after the initial period.
You may also see ads for 2/28 or 3/27 ARMs–the first number tells you how long the fixed interest-rate period will be, and the second number tells you the number of years the rates on the loan will be adjustable. Some 2/28 and 3/27 mortgages adjust every 6 months, not annually.
