A hybrid mortgage combines features of both a fixed rate and an adjustable rate mortgage.  With a hybrid mortgage your initial interest rate is fixed for a specific period of years such as 3, 5, 7 or 10 years.  After the initial fixed term the hybrid mortgage converts to an adjustable rate mortgage or ARM for the balance of the mortgage term.

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Essentially, Hybrid mortgages allow you to pay less for a fixed-rate loan and as a rule of thumb, the shorter the fixed term of the loan, the lower your initial interest rate.  Also with a hybrid mortgage you interest rate adjust only once and after that initial adjustment, the mortgage maintains a fixed rate for the remaining years of your term.  Additionally, your new mortgage rate can never be exceed than six percentage points above your old rate.

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