One of the first choices a home buyer will need to make is whether you want a fixed-rate or an adjustable-rate mortgage loan. Most loans will fit into one of these two categories, however, there is a third option that will allow you to “hybrid” the two.
An adjustable-rate mortgage, (ARM): The interest rate of the mortgage adjusts periodically based on market conditions. For example, your payment will go up if rates go up and go down if rates go down.
Fixed-rate Mortgage: Unlike an adjustable-rate mortgage the interest rate is set at the time you take out the loan and will not change. Fixed-rate home loan terms can vary, but 15-* and 30-year** fixed are the most common.
Hybrid ARM: Features an initial fixed interest rate for a specific amount of time and then becomes an adjustable-rate for the remainder of the term.
*Example 15 Year Fixed: Loan amount $300,000, 20% down, monthly P & I payment $2,256.84, APR 4.495%.
**Example FHA: Loan amount $300,000, 3.5% down, monthly P & I payment $1,501.74, APR 5.395%, FHA monthly MI is $211.00.