The Federal Housing Administration (FHA) recently implemented regulations offering insurance on hybrid ARMs. Hybrid ARMs are mortgages that have a fixed interest rate for an initial period of time, after which the rate adjusts annually based on a certain spread over an agreed upon index rate. Typically, hybrid ARMs have a three, five, seven, or ten year fixed period, with the interest rate adjusting annually thereafter. These are commonly referred to as 3/1, 5/1, 7/1 and 10/1 hybrid ARMs. Due to the fact that a hybrid ARM converts to an adjustable rate mortgage after the initial fixed interest rate period, lenders can offer these loans with an initial interest rate that is lower than the interest rate for a 30-year fixed rate mortgage. The lower rates available with hybrid ARMs enable more families to qualify for home loans.
MBA believes the hybrid ARM program is a great benefit to FHA borrowers, allowing them access to the lower rates offered by these products that are already available to conventional borrowers.