This is a graph of combined average initial interest rates for 5/1-year Hybrid Adjustable Rate Mortgages over the last six months, derived from data gathered as part of HSH's editorial surveys. The weekly 5/1 Hybrid ARM data that populates this graph of average rates can be seen in HSH's Statistical Release.
The 5/1 ARM has a fixed interest rate for the first five years of the loan, which is usually a total of 30 years. After the first five years, the interest rate adjusts each year for the remaining 25-year term. The most common cap structures for these ARMs allow for the interest rate to rise as much as five or six percentage points after the initial period ends, so these products do run the risk of becoming unaffordable for a homeowner if rates have risen sharply during the five-year fixed period.
Five-one Hybrid ARMs are often the most popular Adjustable Rate Mortgage, as they offer homebuyers and refinancers a reasonable balance between lower interest rates and stable payments when compared against the relative expense of a long-term fixed-rate mortgage over the same five-year time frame.
HSH's combined averages give a realistic picture of local mortgage markets, particularly important in high-cost areas.