5-6 Hybrid Adjustable-Rate Mortgage (5-6 Hybrid ARM)

A 5-6 hybrid adjustable-rate mortgage (5-6 hybrid ARM) is a type of mortgage that has a fixed interest rate for the first five years of the loan term, followed by a variable interest rate for the remaining six years. The interest rate on the variable rate portion of the loan is typically tied to an index, such as the LIBOR (London Interbank Offered Rate).

The 5-6 hybrid ARM is a popular choice for borrowers who want the stability of a fixed-rate mortgage for the first few years of their loan term, but who are also willing to accept the risk of a variable interest rate in the future. The 5-6 hybrid ARM can offer borrowers a lower interest rate than a traditional fixed-rate mortgage, but it is important to be aware of the potential risks before taking out this type of loan.

There are a few things to keep in mind when considering a 5-6 hybrid ARM. First, it is important to understand how the interest rate on the variable rate portion of the loan will be calculated. The interest rate will typically be based on the index plus a margin. The margin is a fixed amount that is added to the index to determine the interest rate.

Second, it is important to be aware of the maximum interest rate that can be charged on the variable rate portion of the loan. This maximum interest rate is called the "cap." The cap limits the amount that the interest rate can increase over the life of the loan.

Third, it is important to understand the payment options that are available with a 5-6 hybrid ARM. With a 5-6 hybrid ARM, you typically have the option to make either fixed payments or variable payments. With fixed payments, the monthly payment will remain the same for the life of the loan. With variable payments, the monthly payment will fluctuate based on the interest rate.

Finally, it is important to be aware of the prepayment penalties that may be associated with a 5-6 hybrid ARM. A prepayment penalty is a fee that is charged if you pay off the loan early. Prepayment penalties can be significant, so it is important to read the loan documents carefully before taking out a 5-6 hybrid ARM.

If you are considering a 5-6 hybrid ARM, it is important to speak with a qualified mortgage lender to discuss your options and to make sure that this type of loan is right for you.