Romi Wittman: Check hybrid as alternative to adjustable rate mortgage
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My husband and I plan to make the big move to the Northwest Side of town. That is, if we can sell our house in Vail.
We're in no rush to move, so we at least have the luxury of time.
The crazy go-go days of double-digit appreciation are over. So, too, it appears, are the days of the adjustable rate mortgage.
ARMs were introduced in the 1980s and quickly became a popular financing mechanism for homeowners looking for the lowest possible monthly payment. In 1984, fully two-thirds of all home loans were ARMs, according to Kenneth Harney, a real estate columnist.
Unlike traditional 30- or 15-year fixed loans that offer a fixed interest rate over the life of the loan, ARM interest rates adjust, either up or down, over the life the loan according to the prevailing market rate.
During the 1980s, when 10 percent and 11 percent mortgage rates were not uncommon, ARMs were a boon to folks trying to lower their payments. But nowadays with traditional 15- and 30-year loan rates so low, ARMs have lost much of their appeal.
Enter the hybrid ARM.
Like regular ARMs, hybrids adjust according to the market. However, they offer a fixed rate for an introductory period, generally one, three, five or seven years.
After the introductory period ends, the loan adjusts, or 'floats,' according to the market.
Hybrid ARMs offer more security than traditional ARMs in that the interest rate is fixed for a period of time.
This is ideal for people who don't anticipate staying in their homes long or expect to refinance.
But there are some things to bear in mind. Thirty-year fixed mortgages are still at record lows. In today's market, a hybrid ARM will only save you about 0.18 of a point in interest.
If you plan to stay in your home, you'll likely refinance in a few years, a move that can cost several thousand dollars. Plus, you run the risk that interest rates will rise in a few years meaning your refinance rate could be significantly higher than the 30-year fixed rates you can get today.
It pays to do a little homework to determine if, in the long run, a hybrid ARM really will save you money.
For more information on mortgages, visit these sites:
● answers.com/topic/ adjust-able-rate-mortgag offers more information on the different types of ARMs.
● mortgage101.com will give you the basics.
● bankrate.com/brm/news/ mortgages/20021003a.asp: take a look at the eight 'must ask' mortgage questions and answers.
Romi Carrell Wittman is a Tucson-based freelance writer. She has more than 10 years of experience in marketing, Web site strategy and corporate communications. She can be reached at r.wittman@cox.net.
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