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Overview of Combined/Hybrid ARMs

Last updated 4 years ago

If you’re purchasing a new home, then you have a variety of mortgage rate options. Learn more about combined/hybrid ARMs with the following financial information.

What is a Combined or Hybrid ARM?

A combined or hybrid ARM is a specific type of adjustable rate mortgage. The interest rate associated with a combined adjustable rate mortgage depends on the overall housing market’s interest rates. Unlike fixed rate mortgages, adjustable rate mortgages have fluctuating interest amounts. Most ARMs begin with an initial fixed-rate period followed by intervals of rate changes. Hybrid adjustable interest rates begin with an initial adjustment after about three to ten years followed by annual mortgage rate adjustments.

Interest-Only ARMs

One popular form of hybrid adjustable rate mortgage involves interest-only payments. Originally, these types of home mortgages were designed for middle class home owners. After receiving your home loan, an interest-only ARM requires you to pay the interest on your mortgage for typically ten years. If you have a varying monthly income, then an interest-only mortgage allows you flexible monthly payments before your interest rate changes.

ARM Limits

Since hybrid ARMs will eventually adjust to the market’s current rates, there are limits to protect you from dramatic payment increases. There are a variety of interest rate caps that limit the amounts of your monthly payments. A periodic rate cap inhibits the mortgage change at one time, usually annually. It also limits your adjustable rate mortgage from reaching above a specific amount of percentage points within a year. A lifetime rate rap restricts your home loan’s interest rate from increasing above a certain amount over your entire repayment period. the payment cap places a limit on the amount of your monthly payment amount rather than restricting the interest rate percentage.

Graduated Payment ARMs

A graduated payment hybrid ARM provides you with lower initial payments. This type of ARM is more consistent as your interest rate gradually increases at designated intervals. If you are borrowing a large mortgage amount, then the initial lower interest rates associated with graduated payment ARMs increases your chances of being approved.

Are you preparing to apply for a Huntsville home loan? Entrust your mortgage needs with the financial specialists at 1st Family Mortgage Company. Call us today at (256) 425-0105.


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