Hybrid Adjustable Rate Mortgage Law and Legal Definition
Hybrid Adjustable Rate Mortgage is an adjustable rate mortgage that starts with a fixed interest rate for a set term (such as five, seven, or ten years), after which the rate can adjust. An Hybrid adjustable-rate mortgage blends the characteristics of a fixed-rate mortgage and an 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.
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. Also known as "fixed period ARMs".