Subprime Hybrid Mortgages

Summary: Subprime hybrid mortgages offer temporarily low rates for borrowers while they work to rebuild their credit. With a sub-prime hybrid mortgage, you don't have to pay PMI, saving hundreds a year. After two or three years of on time payments, you can then refinance for conventional mortgage rates.

Subprime hybrid mortgages offer temporarily low rates for borrowers while they work to rebuild their credit. With a sub-prime hybrid mortgage, you don't have to pay PMI, saving hundreds a year. After two or three years of on time payments, you can then refinance for conventional mortgage rates. Hybrid Mortgage Basics Since so many people refinance their home loans after they have reestablished their credit, lenders created a mortgage to offer maximum flexibility for borrowers. Hybrid mortgages are typically 1.5% lower than a conventional loan for the first two or three years, depending on your mortgage terms. After that, the rated becomes adjustable, rising and falling based on indexes. Lenders usually require a prepayment fee if the mortgage is paid off before two or three years. Since most borrowers use this period to establish good credit, the fee isn't a problem for most. You may also be able to waive the fee by paying a point upon the loan's settlement. A hybrid mortgage also allows you to borrow more than with a fixed rate mortgage since your monthly payments are lower. You may also decide to increase your down payment to lower your rate or increase the amount you qualify to borrow. Hybrid Mortgage Lenders Hybrid mortgages are offered by conventional and sub-prime lenders. Rates, fees, and terms will vary with each lender. In order to find the best financing package, you should request quotes from several lenders before making a decision. Typically online financing companies waive or reduce fees, so they are well worth checking out. You can also request quotes from traditional companies through their websites. Online mortgage brokers also make comparison shopping easy by offering several side by side quotes. Refinancing Options After you have had your hybrid for at least two years, you should begin shopping to refinance your mortgage. If you are planning to move within seven years, an adjustable rate mortgage may offer you the lowest rate. If you plan to stay put, a fixed rate mortgage can guarantee you a low rate over the course of your loan. As with a sub-prime loan, compare lenders and finance packages to find the best deal.