Are you considering buying property in the state of Georgia? Then you may wish to consider a hybrid mortgage as a means of acquiring the proper funding.
In the past, customers who have desired to minimize their monthly payments while eliminating uncertainties about interest rates that tend to fluctuate wildly have chosen to go with thirty year fixed rate mortgages. As an alternative, there are ARMs – one year adjustable rate mortgages – which tend to be favored by those potential home owners who desire the lowest possible interest rates and feel that interest rates will remain low for the foreseeable future. Also, buyers who do not feel that they will stay in their homes for a long time typically choose adjustable rate mortgages. Adjustable rate mortgages can be a major risk, however, in that they expose buyers to the possibility that rising interest rates might cause a rapid increase in mortgage payments.
When interest rates rise rapidly, serious home buyers in Georgia tend to consider fixed period adjustable loans. These “hybrid loans” offer fixed rates for a specified period of time, usually ranging from three to ten years. After the fixed rate period expires, the interest rate will be adjusted on an annual basis. In exchange for risking this increase in rates at the end of the fixed period, the borrower will have an interest rate that is a bit lower than rates on thirty year fixed rate mortgages – but higher than a one year adjustable rate mortgage would entail.
Initially, the rate break might save the buyer thousands upon thousands of dollars. If the buyer manages to sell or refinance before their fixed rate period comes to a close, then the savings will become permanent. Similarly, if interest rates stay steady or drop after the fixed period ends, the savings will also remain permanent. It has been established statistically that the vast majority of home owners with new mortgages tend to sell or refinance within a period of five to seven years after they get the mortgage.
Say you take out a hybrid loan with an initial rate of 7.625%, an amount that is fixed for the first sixty months. After that period expires, the rate will be adjusted after every twelve month period to the lowest of three different options: the current rate on one year Treasury bills with 2.75% added on; the previous rate with a maximum annual cap of 2% added on; or a lifetime cap of 12.625%. For this loan, there is no such thing as a prepayment penalty. The buyer does not have to pay any points, either. Instead, they receive a credit of $250.
For home buyers who expect to sell their new house or condo in Georgia within a period of seven years, a hybrid mortgage can be a very good deal indeed. Likewise for those buyers who expect a major drop in interest rates to occur during this time.