The reality of today?s market is that interest rates are higher than rates from the past few years. What this means for first time homebuyers, real estate investors, and property owners with adjustable rate mortgages is that monthly payments for the traditional 30 year mortgage are becoming more and more of a financial burden.</p>
Fortunately, for current and prospective homeowners who have good payment histories over the last two years and credit scores above 620, an emerging product is making monthly payments for mortgages both affordable and safe.
Similar to Option-Arm mortgages, Hybrid Arm mortgages have 4 different options for monthly payments. These options are:
1.Minimum Payment – minimum payment?can lead to negative amortization.
2.Interest Only Payment – payment on only the interest of the mortgage
3.15 year Amortized Payment – payment towards the principal and interest based on a 15 year term
4.30 ? 40 year Amortized Payment – payment towards the principal and interest based on a 30 or 40 year term
The primary difference between an Option-Arm mortgage and a Hybrid Arm mortgage is the length of time the minimum payments and interest rates in a Hybrid Arm are fixed.
Option-Arm mortgages typically have fixed interest rates of 1 to 3 months. In contrast, Hybrid Arms have fixed interest rates between 1 and 7 years.
What this means for homeowners is that the benefits of Option-Arm mortgages are now combined with the security of longer termed mortgages.
For example, a homeowner with a 200,000 5-year adjustable mortgage pays $1467.00 before her taxes and insurance. With a 5 year Hybrid Arm, the homeowner would pay $800 a month on the same mortgage. The savings on the minimum payment would be comparable to the savings of an Option-Arm mortgage.
However, for an Option-Arm mortgage, the minimum payment would increase after 1 to 3 months, leading to minimum payments above $800. With a Hybrid Arm, the minimum payment would remain at $800 for the 5 year term. For the homeowner, this means a more predictable monthly payment and a reduced risk for negative amortization.
Hybrid Arms (also known as Hybrid Option Arms and Fixed Option Arms) typically save homeowners about 55% of their typical monthly payments. They are powerful tools to save money and ensure financial freedom. To see if you qualify for a Hybrid Arm, contact a mortgage professional today.
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