what is a hybrid arm 
a hybrid adjustable rate mortgage or hybrid arm also known as a fixed period arm blends characteristics of a fixed rate mortgage with an adjustable rate mortgage a hybrid arm will have an initial fixed interest rate period followed by an adjustable rate period after the fixed rate expires the rate adjusts 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 the most common configuration of hybrid arm is the 5 1 which has an initial fixed term of 5 years followed by adjustable rates that reset every 12 months 1understanding hybrid armsa typical fixed rate mortgage loan has a fixed rate for the life of the loan which might be 15 or 30 years conversely an adjustable rate mortgage arm has an interest rate that is not fixed and resets periodically which means the reset rate can be higher than the initial rate a hybrid arm is a blend of the fixed and adjustable rate mortgages offering a fixed rate for a set period and adjusting annually afterwards the length of the initial fixed rate period can vary such as three five or seven years after the fixed rate period ends the loan essentially converts to an adjustable rate mortgage in which the rate resets periodically based on an index or benchmark the 5 1 hybrid arm may be the most popular type of adjustable rate mortgage the five in a 5 1 arm means the fixed rate period is for five years the one means the rate will reset once per year following the end of the fixed rate period there are many types of arms including 3 1 7 1 and 10 1 arms however they each have the same structure in which the first number represents the fixed rate period while the second number is how often the rate resets afterward in other words the 3 1 7 1 and 10 1 arms offer an introductory fixed rate for three seven or 10 years respectively after which they adjust annually 2other arm structures exist such as the 5 5 and 5 6 arms which also feature a five year introductory period followed by a rate adjustment every five years or every six months respectively notably 15 15 arms adjust once after 15 years less common are 2 28 and 3 27 arms 3 with the former the fixed interest rate applies for only the first two years followed by 28 years of adjustable rates with the latter the fixed rate is for three years with adjustments in each of the following 27 years some of these loans adjust every six months rather than annually 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 the amount by which the interest rate can adjust is typically subject to an interest rate cap when considering a hybrid arm be sure to research to find a mortgage lender who has a lot of experience with adjustable rate mortgages 4hybrid arms come with significant risks to borrowers who plan to refinance the mortgage or sell the property after the reset if the borrower becomes unemployed or there s a market downturn the borrower may not be able to repay the loan at the higher rate and or sell the property for a higher price as a result the borrower may go into foreclosure 5