Basically, a hybrid loan is something tailored for a certain situation or type of borroweri. In this article we'll discuss the main two types of hybrid loans, the ARM and the Balloon.

Take a look at this loan type: 30/5 Balloon with conversioni option.

Make any sense to you? Probably not. This is a loan whose interesti calculations and the resulting payments are based on a term of 30 years. However, after 5 years, the entire principali is due. With this particular loan there is an option to convert to a 25-year fixed rate based on market pricing at the time the balloon becomes due. Many balloon loans have this option, but never assume that yours does unless it is stated in the mortgagei paperwork. There might be a minimal processing fee (typically just a few hundred dollars) to obtain the new loan. The interest ratei on the new loan is normally the FNMAi 60-day rate + 0.5%. The conversion option may also be conditional upon :

• Satisfactory mortgage-payment history.
• The borrowers must still be the owner-occupants.
• Secondary financing may not be allowed.

This loan is also known as a 5/25, or 30-year due in 5.

Below we list several other common loan types.

30/7 Balloon with conversion option.

• Same as above replace 5 yrs with 7 yrs, and 25 yrs with 23 yrs.

30/5/1 ARM (may also be called a 5/25).

• 5 yr fixed followed by a 1-year adjustable for 25 yrs.
• This is a 30-year loan except that the interest is only fixed for the first 5 years After 5 years the loans becomes an adjustable. These loans typically do not have a balloon provision.

30/7/1 ARM (may also be called a 7/23).

• 7 yr fixed followed by a 1-year adjustable for 23 yrs.
• This is a 30-year loan except that the interest is only fixed for the first 7 years After 7 years the loans becomes an adjustable. These loans typically do not have a balloon provision.

30/10/1 ARM (may also be called a 10/20).

• 10 yr fixed followed by a 1-year adjustable for 20 yrs.
• This is a 30-year loan except that the interest is only fixed for the first 10 years After 10 years the loans becomes an adjustable. These loans typically do not have a balloon provision.

We also have articles on balloons and ARMs for further reading.