Intermediate Fixed Rate Loans

Intermediate Fixed Rate mortgages (sometimes referred to as Short-Term Fixed Rate mortgages, or Hybrids) come in numerous varieties; the 3, 5, 7 and 10-Year Fixed. These are all 30-year loans that carry a fixed rate for a set number of years, and then roll over to an Adjustable Rate Mortgage.

For example, in a 7-Year Fixed Rate scenario, the rate would be fixed the first seven years, and the loan becomes an Adjustable for the remaining 23 years. The main advantage of these hybrid programs over a traditional 30-Year Fixed loan is typically a slightly lower interest rate.

These types of loans often work well for people who do not plan on being in their home for an extended period of time, such as first time home buyers. The most important question to ask when going into an Intermediate Fixed Mortgage is how long will the borrower need the money?

If the borrower intends to sell the home in four to five years, then a 5-Year Fixed loan offers stability and a lower interest rate for the time that money is needed. However, in this example it may not be wise to pay points up front to obtain a lower interest rate, because the likelihood of recuperating the cost of those points would be diminished with the short tenure in the loan.

The borrower’s financial planner and mortgage consultant should work hand-in-hand to provide guidance to the borrower regarding choice of loan program and whether to pay to reduce the initial interest rate.