In growing real estate markets, like Phoenix, where the interest is relatively low, applying for a hybrid mortgage may seem illogical. Any mortgage broker in Tempe would attest that many homeowners are refinancing old loans to lock down today’s nearly historic-low rates for the entire term.
In a hybrid mortgage, though, the interest rate is only fixed for a specified period, and set to adjust every year. Although you can predict when it will change, whether it goes higher or lower is anyone’s guess. It may not offer security over time, but the fact that its initial rate is much lower than those of fixed-rate loans make it attractive.
Here’s when it makes sense to apply for a hybrid mortgage:
If You Plan to Move Before the “Honeymoon” Period Is Over
Planning to stay in the property you intend to buy temporarily is the most sensible reason why going down the adjustable-rate route is wise. After all, why pay for slightly higher interest when you wouldn’t keep the same mortgage for many years. And since early payments won’t go toward the balance, you should keep your loan’s interest as low as possible.
But if you plan to keep your place of residence over the long haul, refinancing your mortgage before the rate adjusts is your option too. If you feel the interest rates wouldn’t rise so much in the future, then getting a hybrid loan can save you a lot of money.
If You Have Bad Credit
The lowest interest rates are naturally out of reach of bad-credit borrowers. If you’re one of them, don’t fret; you can still get a favorable deal with an adjustable-rate home loan. The temporary, fixed-rate period buys you time to rebuild your credit. So that when you’re ready to refinance down the road, a higher credit score can qualify you for better interest rates.
If You Are Sure to Earn More Money in the Future
You can keep your hybrid mortgage after the discounted period is over for as long as you’re financially capable of absorbing potentially higher monthly payments. If the odds go in your favor and your mortgage interest doesn’t increase substantially, your savings during the first months could be bountiful.
Choosing a mortgage, be it fixed-rate or hybrid, is a gamble. Weigh the pros of your prospective financial product against its cons to think it out properly, and make an informed decision.