The Buchleightners Used a Hybrid

Many borrowers choose a hybrid ARM. These ARMs, often referred to as 3/1, 5/1, or 7/1 options, offer a set rate for a period of years, then morph into ARMs that adjust yearly (e.g., a 3/1 means fixed rate for three years, the adjustable each year thereafter).

Walter and Sara Buchleightner found a competitively priced 3/1 ARM. Their $200,000 loan started with an interest rate of 6.37 percent, which held steady for three years. After that, it adjusted once a year for its remaining 27-year term. By choosing a 3/1 hybrid, Walter and Sara cut their mortgage payment from $1,599 a month for the then-proposed 9 percent fixed-rate plan to $1,240 a month for the ARM they selected.

Explaining why they were attracted to this particular ARM, Walter says, "Paying $1,240 a month sounded so good. I shopped the mortgage market and I had people quoting me a full point higher."

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