Are Hybrid Option Arms safer than Option Arms?
April 29th, 2007Yes, Hybrid Option Arms are 100% safer than Option Arms
Here are the reasons why:
1- The rate is fixed for the term
Yes, fixed. compared to the regular option arm which is a monthly adjustable loan. You have a choice of 5 or 7 years.
2- Interest rate is much lower
You can get a fully indexed hybrid option arm around 6.5% as opposed to 8.5% with a traditional Option Arm
3- Much less deferred interest
What this means is that if you choose to make the minimum payment you will defer much less interest. In other words your negative amortization will be lower under this program.
4- Hybrid Option Arm does not recast
Recast means that once you reach a certain balance over your original amount (typically 110-115%) your loan will recast (convert) to a fully amortized payment at the fully indexed interest rate for the remainder of the term. This would be a tremendous payment increase for the borrower. Many of the traditional option arm loans are recasting even before the pre-penalty period is over.   A good hybrid option arm loan will not recast for the term due to the better interest rate, the fact it is fixed and that the minimum payment is higher than traditional option arms.
5- Great for Investment Property
This loan is ideal for rental property from a single family residence and up to four units.
More info:Â hybrid option arm loan
