A Hybrid ARM combines the features of both a fixed-rate loan and an adjustable-rate loan. It starts off like a fixed-rate mortgage, with the same interest rate for up to ten years. At the “reset date” (the date at which the mortgage changes from the fixed-rate to the adjustable-rate) it converts to an ARM, with the rate being adjusted every year for the remaining life of the loan. The interest rate is based on an index plus a margin.
Customers will be notified months ahead of their first interest rate adjustment and will receive a good-faith estimate of their new monthly payment, along with a list of alternatives they may pursue to head off the higher rate, including refinancing and renegotiation of loan terms.