What is a hybrid loan?
A hybrid loan is a type of loan that is a mixture of a fixed rate loan and adjustable-rate mortgage, or ARM. The term hybrid refers to the fixed period of the loan, which is typically 2 to 5 years.
Hybrid Loan Versus Interest-Only Loan
A hybrid differs from an interest-only loan, which also has a 5 to 10 year fixed period that adjusts upwards when principal payments begin because during the fixed period, more money is being put toward the loan, resulting in a higher level of equity and increased potential cash flow.
Negative Amortization
Like interest-only loans, the lower fixed rate portion resulted in an uneven amortization of loan costs that are normally distributed throughout the loan’s period in the case of a fixed rate loan. This results in negative amortization in the early years, which is only a problem if the value of the home or loan-to-value ration does not decrease.
Student Loans
- 3 Factors that Contribute to Fluctuating Interest Rates on Student Loans
- What are the Consequences of Defaulting on a Federal Student Loan?
- What Happens when You Default on a Private Student Loan?
- Federal vs. Private: Comparing Student Loan Interest Rate
- Can You Get a Private Student Loan with No Cosigner?