Borrowers with bad credit can get low rates on subprime hybrid mortgages while they work to get their credit back on track. With a subprime hybrid mortgage, you don't have to pay PMI, which saves you hundreds of dollars a year. After two or three years of making payments on time, you can refinance to get rates that are more typical.
How Hybrid Mortgages Work
Since so many people refinance their home loans after getting their credit back on track, lenders made a mortgage that gives borrowers as much freedom as possible. For the first two or three years, depending on the terms of your mortgage, a hybrid mortgage usually costs 1.5 percent less than a traditional loan. After that, the rate will change based on indexes, going up or down.
If you pay off your mortgage before two or three years, most lenders will charge you a fee. Most borrowers don't mind the fee because they use this time to build up good credit. You might also be able to get out of paying the fee if you pay a point when the loan is paid off.
Since your monthly payments are lower with a hybrid mortgage, you can also borrow more than with a fixed-rate mortgage. You could also choose to put down more money to lower your interest rate or increase the amount you can borrow.
Hybrid Mortgage Lenders
Both traditional lenders and sub-prime lenders offer hybrid mortgages. Each lender will have different rates, fees, and terms. Before making a choice, you should get quotes from a number of lenders to find the best financing deal.
Most online financing companies don't charge fees or charge less, so it's a good idea to check them out. Traditional companies also have websites where you can ask for quotes. Online mortgage brokers also make it easy to compare prices by putting several quotes next to each other.
Options for refinancing
After at least two years of owning your hybrid, you should start looking to refinance your mortgage. If you plan to move within seven years, you might get the best rate on an adjustable-rate mortgage. If you plan to stay in the same place, a fixed-rate mortgage can make sure you have a low rate for the whole loan.
Like with a subprime loan, compare lenders and financing packages to find the best deal.
