Many Arizonans are allergic to hybrid mortgages. Average borrowers aren’t thrilled about the uncertainty that comes with them. After all, why absorb more risks when interest rates are nearly at all-time lows.
But then again, every home loan in Phoenix comes with its unique advantages and limitations. If you’re afraid of a 7/1 adjustable-rate mortgage or another variety, you probably just don’t understand how hybrid loans work. To appreciate them fully, an expert at VIP Mortgage debunks these common misperceptions:
Interest Will Surely Increase After Initial Period
After the discounted period of hybrid mortgages, their interest is subject to change. However, nobody can say whether it would increase or head south. Yes, your interest could still go down after the relatively cheaper rate you received already.
Generally, though, the interest rates of ARMs rise. This is why it’s imperative to prepare yourself financially for higher monthly payments for at least 12 months after the initial period.
Interest Rate Adjustments Can Go Out of Hand
Although it’s probably for the hybrid home loan monthly payments to become unaffordable after the “honeymoon” phase, the maximum upsurge is predictable. ARMs come with rate caps, preventing insane jumps. Before you sign on the dotted line, check out your mortgage’s initial, periodic, and lifetime caps to foresee worst-case scenarios.
Hybrid Mortgages Can’t Be Paid Off Early
A hybrid home loan isn’t a marriage contract without a divorce option. If you win the lottery or receive an inheritance, nobody’s going to stop you from finish your ARM ahead of schedule. Some lenders impose penalties for prepayment, but they don’t rule out the possibility.
Also, many borrowers refinance their hybrid loans before the adjustment period kicks in. Many factors could cause your refi application rejection, but having an ARM isn’t one of them.
A hybrid home loan is advantageous for certain borrowers. Speak with an experienced mortgage broker to determine whether is for you or not.