| Question: I want to reduce the mortgage payments | | | | Hybrid ARMs including 5/1ARM and others offer a |
| and invest the rest in some business. My close | | | | fixed rate for a specified period, say 5 years for the 5 |
| relatives are suggesting that I change my ARM to an | | | | 1 year ARM. After the specified time frame, the |
| FRM, as rates are on a high with the ARMs. What are | | | | interest rate on 5/1 year ARM is adjusted once a year. |
| your thoughts on it? | | | | Currently the fixed rate on this hybrid ARM is 6% |
| Answer: Higher short term interest rates in the industry | | | | There are different types of hybrid ARMs like 3/1, 7/1 |
| imply that rates on different adjustable rate mortgages | | | | and 10/1 with 5/1year ARM being the most popular |
| (ARMs) are set to climb up. And now, since the 30 | | | | amongst them. But there are some disadvantages |
| year ARM is averaging around 6.26, it's time to shift | | | | also. For instance, you may plan to move out of your |
| from an ARM to an FRM (Fixed rate mortgage). | | | | home in a couple of years. Refinancing your mortgage |
| You can opt for a 30 year fixed rate mortgage in | | | | will then negate your savings due to lower interest rate |
| order to avail the current low interest rate on FRMs. | | | | on the 5/1 year ARM. And also, if your income goes |
| But if you don't intend to occupy your current home | | | | higher than your payments on the ARM, then you may |
| for long, and you aren't sure about paying off long | | | | wish to carry on with the ARM itself. |
| term loans, it is best to consider 5/1 Hybrid ARM. | | | | |