What Is a 5/꧙6 Hybrid Adjustable-Rate Mortgage ও(ARM)?

A 5/6 hybrid adjustable-rate mortgage (ARM) has a fixed interest rate for the first five years, after which the interest rate can change every six months. A 5/6 hybrid adjustable-rate mortgage (ARM) combines the characteristics of a traditional 澳洲幸运5官方开奖结果体彩网:fixed-rate mortgage with those of an adjustable-rate mortgage.

How a 5/6 Hybriღd Adjustable-Rate Mortgage ⛦(ARM) Works

A 5/6 hybrid ARM starts with a fixed interest rate and then the interest rate becomes adjustable for the remaining years of the loan. The adjustable rate is based on a benchmark index, such as the 澳洲幸运5官方开奖结果体彩网:prime rate.

The lender will also add additional percentage points, known as a margin. If the index is currently at 4% and the lender’s margin is 3%, then the 澳洲幸运5官方开奖结果体彩网:fully indexed interest rate for the borrower will be 7%.

A 5/6 hybrid ARM should have caps on how much the interest rate can rise over the life of the loan. This ♕offers protection against rising interest rates that could make the monthly mortgage payments unmanageable.

How Are 5/6 Hybrid ARMs Indexed?

Lenders use different indexes to set interest rates on 5/6 hybrid ARMs. The U.S. prime rate and 澳洲幸运5官方开奖结果体彩网:Constant Maturity Treasury (CMT) rate are commonly used. In a rising interest-rate environment, the longer the period between interest-rate reset dates, the better it will be for the borrower. A 澳洲幸运5官方开奖结果体彩网:5/1 hybrid ARM would be better than a 5/6 AꦅRM because its interest rate would n♓ot rise as quickly. The opposite would be true in a falling interest-rate environment.

5/6 Hybrid ARM vs. Fixed-Rate Mortgage

Advantages of a 5/6 Hybrid ARM

Many adjustable-rate mortgages, including 5/6 hybrid ARMs, start with lower interest rates than fixed-rate mortgages, providing the borrower with a significant savings advantage, especially if they expect to sell the home or 澳洲幸运5官方开奖结果体彩网:refinance their mortgage before the fixed-rate period of the ARM ends. Borrowers should ensure that the lender doesn’t impose costly 澳洲幸运5官方开奖结果体彩网:prepayment penalties for getting out of the mortgage early.

Disadvantages of a 5/6 Hybrid ARM

The 5/6 hybrid ARM comes with 澳洲幸运5官方开奖结果体彩网:interest rate risk. Because the interest rate can increase every six months after the first five years, the monthly payments may become unaffordable for the borrower. With a fixed-rate mortgage, the interest rate will never rise. The interes𝄹t rate risk is mitigated if the 5/6 hybrid ARM has periodic and lifetime caps on any interest rate increases.

The Bottom Line

A 5/6 hybrid adjustable-rate mortgage ha🌠s a fixed interest rate for the first five years, and then the rate adjusts every six months. The rate is commonly linked to a benchmark index, such as the prime rate.