The most common ARM products we originate are hybrid ARMs. With a hybrid ARM the interest rate is fixed for an initial period of time before it reaches an adjustable rate period.
3/1, 5/1, 7/1, & 10/1 ARM’s– The most common hybrid ARM’s are the 3/1, 5/1, 7/1, and 10/1 ARM’s. With these loan products a borrower is able to lock in an initial interest rate for 3,5,7, & 10 years respectively. In most interest rate environments the borrower is able to lock in a lower rate for these initial periods than if they were locking into a 30-year fixed rate. Since most homebuyers do not stay in the same home or keep the same mortgage for more than 5 years these loans can provide the same level of interest-rate security as a fixed rate mortgage with a lower interest expense. After the initial fixed interest rate period is up these loans then go into an adjustable rate period where the interest rate will adjust either annually or every six months.