Posted by Brent_IL on September 13, 2003 at 18:14:43:
A hybrid loan is an adjustable-rate loan where the interest rate is fixed for a number of years certain and can be adjusted upward. There?s usually a limitation in the annual point increase and an overall cap, e.g., 2% a year, 6% over the life of the loan. Fees are about the same.
These are good when you plan to own for an intermediate term, say five or six years. Long-term hybrids lose their effectiveness because the interest rate differential when compared to a fixed rate is less, so I?d suggest looking at five years, or fewer, before the adjustment kicks in. You will know when the increase is coming, so prepare for it.