Adjustable Rate Mortgages (ARM) are not only very unpopular right now thanks to the media bashing them, but they currently (August 31, 2007) have higher rates than Fixed Rate Mortgages.   This poses a problem for people that want a lower payment but now are demanding the secure rate of a Fixed Rate Mortgage.  

The answer to this problem is found in Hyrbid Mortgages.  These loans combine the security of a long-term rate with a lower payment in the early stages of the loan.   

My favorite Hybrid Mortgage program is a 30 year Fixed Rate with 10 years or 15 years of Interest Only…. hence the Hybrid moniker.

The Mortgage Program Features are:

• The Interest Rate is fixed for 30 years
• The First 10 or 15 years (depends on borrower) are Interest Only payments
• At the end of the Interest Only term the loan is recast into a Fixed Rate for the remainder of the 30 years.  The rate stays the same but the Payment changes
  ( i.e. 30 yrs with 10yrs Interest Only = 10 yrs of Interest Only and then a 20yr Fixed Loan for the remainder of the term)

The Mortgage Program Benefits over a traditional 30yr Fixed Rate Mortgage:

• Lower payments during the Interest Only period is better on your cash flows
• Most homeowners move or refinance within 5-7 years, so you’ll likely never reach the end of the Interest Only period!
• If your goal is to pay off your mortgage early, it is easier to do with an Interest Only loan because paying more every month reduces the principle faster.
• If your goal is to invest outside of your Mortgage, this leaves more room to do so because the payment is lower.  Invest the difference in the 30yr fixed that you would have paid and you will have a nice nest egg in 10-15 yrs!
• Tradition!!! Feh!

 What you need to consider:

• The initial Interest Rate will be 0.25% to 0.375% higher than a traditional Fixed Rate Mortgage… BUT it still has a lower payment
• The payment at the end of the Interest Only term could be noticeably different than the Interest Only Payment as the Amortization term will be shorter (20 or 15 yrs)
• If your goal is to stay in the home with the same exact payment for 30 years, then you will need to reduce your principle before the end of the Interest Only term
• The lower payment should be used carefully with a disciplined and budget oriented mindset.

All in all, this is one of my favorite Mortgage programs as it provides for the people who are more conservative in their Mortgage Planning and prefer to have a long-term fixed Interest Rate AND it offers a lower payment which benefits the borrower who can use the extra money to invest, pay down higher Interest Rate debts or to pay down the Mortgage faster.

Whatever your strategy is with your Mortgage Plan, this is Hybrid 30yr Fixed Rate Mortgage is a great loan to consider!

For more information, contact your favorite Mortgage Broker Today!