Hybrid Option ARM
Mortgage Library: Types of Mortgage Loans: Option ARM: Hybrid Option ARM
There is a wide variety of adjustable rate mortgage programs with flexible payments, that we divide into categories in the following way:
Hybrid option ARM loans, a relatively new combination of option ARMs and hybrid ARMs, enhance payment flexibility of the former, including potential for negative amortization, with rate stability of the later, by allowing borrowers to fix the interest rate for the first three, five or seven years after the note date. With Hybrid option ARMs, the following 'fixed periods' are available:
'Regular' 1month option ARMs usually have a 1month Initial Interest Rate Period. 'Hybrid' option ARMs may have either 'c', or a combination of 'a' and 'b'. Examples:
Loan ReAmortization (Recasting) With hybrid option ARMs that have a payment options period, the new payment required at NegAm Recast is the interestonly payment, not the fully amortizing payment. If there is a 10year payment options period, the interest only and the minimum payment options can only last to the 10th year (if the negative amortization cap is not reached earlier). At the end of the payment options period, only fully amortizing payments are allowed. Some lenders offer another hybrid option ARM loan type, that doesn't have payment options period and requires the fully amortizing payment at recast. Most hybrid option ARM loans, unlike regular option ARMs, have both first interest change cap and periodic interest change cap. With these programs, the minimum payment adjustments are not capped after the initial fixed rate period, (i.e. there is no payment cap)*.
Every option ARM loan program (including both hybrid and standard versions) has a lifetime cap that limits the interest rate increase over the life of the loan. The following method (1) is used with the most common form of option ARM with monthly rate adjustments that begin within 1 month of origination: the minimum payment is based on the original loan amount amortized over the original loan term using the start rate. With hybrid option ARMs, the minimum payment is usually calculated either as a percent of the fully amortizing payment (2), or, with some loan programs, using the minimum payment rate (3), that is set at several points below the fullyindexed rate. The minimum payment, calculated as a percentage of full payment, may vary from 50% to 70%. The minimum payment rate is usually set at 3  5 points below the fullyindexed rate. 
5/1 Option Arm  Standard Option Arm  
Initially, the minimum payment is calculated as a percent of the fully amortizing payment.  Initially, the minimum payment rate is set at 3 points below the fullyindexed rate.  Initially, the minimum payment is calculated using the start rate, the loan amount and the loan term.  
Loan Terms: Minimum Payment: $788.05 = $1,432.82 x 0.55 
Loan Terms: Minimum Payment: $816.48 
Loan Terms: Minimum Payment: $666.50 

Minimum Payment Changes  
The minimum payment remains unchanged during the initial fixed rate period.  The minimum payment is recalculated annually.  



Due to the method that is used to compute the minimum payment and the fact that the interestonly payment (not the fully amortizing payment) is required at recast, hybrid option ARMs are believed to have the ability to soften potential payment shock for borrowers who always select the minimum payment option. Mortgage Professionals Offering Option ARM Loans

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