A Primer on Hybrid Mortgage LoansAllison Beatty
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There are many unique mortgage loan types designed to appeal to home owners with special financial goals. Many of these loans are called "hybrid" loans, as they combine features of more traditional loans into a new loan package. Here's an overview of some common hybrid loans.
"Piggy Back" MortgagesThese types of hybrid mortgages allow borrowers to close on two loans at the same time -- a first mortgage and a second mortgage. Typically, the first mortgage is for 80 percent of the value of the property and the second loan is for 10 to 15 percent of the value. The remainder comes from your down payment.
Piggy back loans allow you to:
- Get into a mortgage with a lower down payment.
- Avoid paying private mortgage insurance (PMI), in some cases.
- Possibly get a lower monthly mortgage payment than when taking out a loan with PMI.
ARMs with a Loan TwistYou're probably familiar with adjustable rate mortgages or ARMs. Some hybrid loans are considered "convertible ARMs" because they include an option to covert to a fixed rate at a later date. These loans offer:
- A measure of security, as you know the loan will become more convention in a certain number of years.
- A lower monthly mortgage payment, initially.
Who Offers Hybrid Loans?Hybrid loans have become commonplace in the mortgage industry, so you'll find them with lenders large and small. The Internet also is a great source for hybrid loans, as many online lenders offer these flexible loan programs. When searching for a lender consider:
- Their selection of loan programs. The wider the selection the better, as it gives you several ways to qualify.
- Their years in the mortgage business.
- Their customer service record. Don't be afraid to ask for references and talk to their previous customers.
About the Author
Allison E. Beatty is a syndicated real estate writer who has been writing home improvement columns for 15 years.