What Is a Hybrid Mortgage?

How it works | How much you'll pay | Is a hybrid mortgage worth it | Compare hybrid mortgages | Summary | FAQs

A hybrid mortgage has a fixed interest rate for a period of time, then adjusts periodically for the remainder of the loan. Essentially, it has features of both a fixed-rate mortgage and an adjustable-rate mortgage.

The draw of a hybrid mortgage is the initial “teaser” rate, which is typically lower than mortgage interest rates for fixed-rate products. Home buyers can start off with a lower interest rate and monthly payment, which could help preserve cash flow.

For example, the rate for a 30-year fixed mortgage could be somewhere around 5% at a given time, whereas a 3-year hybrid mortgage or 3/1 would be around 3% at the very same time. Going with the 3/1 instead of the fixed-rate mortgage could make a considerable difference in the amount of your monthly payment.

How a hybrid mortgage works

A hybrid adjustable-rate mortgage (ARM) starts with a fixed interest rate, then switches to a variable rate that adjusts at set intervals.

You’ll see formats like 5/6, 7/6, or 10/6 — the first number is the fixed-rate period in years, and the second shows how often the rate can adjust after that period (every six months for these common products).[1] 

Once the fixed period ends (your reset date), the new rate is calculated as index + margin. The index is a the market interest rate, and the margin is an interest percentage that's determined by the lender.

ARM rates are subject to caps that limit how much the rate can rise at the first adjustment, at each subsequent adjustment, and over the life of the loan. Most new conforming ARMs use a SOFR-based index (Secured Overnight Financing Rate; LIBOR was retired in 2023), while some loans still use the CMT (Constant Maturity Treasury) index. Your loan paperwork will name the exact index and margin. 

Example (5/6 ARM): Your rate is fixed for five years. After that, it can change every six months based on the current index + margin, but never more than the caps allow.

A three-year hybrid mortgage has a fixed-rate for three years (36 months) before converting into an annual adjustable-rate mortgage, meaning your interest rate will adjust once a year for the next 27 years of the mortgage.

When the fixed interest rate changes to the adjustable rate, this is known as your reset date. You’ll know the reset date based on the kind of hybrid mortgage you have.

Depending on your lender, you may have access to a wide variety or just a few hybrid mortgage options. Common hybrid loans include 5/1, 7/1, and 10/1.

Some hybrid products adjust every six months (e.g., 3/6 ARM) months or just once after 15 years (15/15 ARM).

What affects loan terms?

Your closing documents spell out:

• Exact ARM type: 5/6, 7/6, 10/6, etc. (fixed years / adjustment every six months) 
• Initial rate and reset date: When your fixed period ends and adjustments begin.
• Index: The external benchmark. Today, most conforming ARMs tie to SOFR; some use CMT.
• Margin: The fixed number of percentage points added to the index at each adjustment. 
• Caps: Limits on changes, often written as initial/subsequent/lifetime (e.g., 2/1/5 or 5/1/5)

Payment caps

Modern ARMs include protections that limit how quickly your rate can rise:

• Initial adjustment cap: Max increase at the first reset (often 2% or 5% above your initial rate).
• Subsequent cap: Max increase at each later reset (often 1–2%).
• Lifetime cap: Total maximum increase over the life of the loan (commonly 5–6% above your initial rate).  

Example: 5/2/5 cap structure

Your first adjustment can’t be more than five percentage points more than your initial interest rate.

All subsequent rate increases cannot exceed two percentage points.

Your interest rate can never increase more than five percentage points over the life of the loan.

Why this matters: Your future payment depends on the index + margin math, but caps define the maximum size and speed of any payment jump.

Is a hybrid mortgage worth it?

The biggest benefit of a hybrid mortgage is having a lower interest rate. Even temporarily, a lower interest rate could mean hundreds of dollars difference in a monthly mortgage.

The downside of hybrid mortgages is that you could have a much higher monthly payment if your interest rate adjusts up. A higher adjustment, coupled with an unexpected life change (e.g., divorce, job loss, medical emergency), could put you at risk of default.

Good candidates for a hybrid mortgage:

• You expect a near-term exit (sale or refinance) within 5–10 years.
• Your income is likely to increase before resets begin.
• You can afford the worst-case payment under your cap schedule.

Probably not a fit:

• You’ll keep the loan long-term and need payment certainty.
• Your income is fixed or declining (e.g., retirement on the horizon).
• You’d lose sleep over possible payment jumps.

💬 Talk it through: A seasoned agent can help you game-plan refi/sale scenarios and choose the right structure. Clever can match you with a top local pro (and you may qualify for cash back after closing).

Which hybrid mortgage should I get?

Which hybrid mortgage is best for you will depend on how long you want to wait before rates adjust. Here are some common options; you might want to explore a few different types of hybrid mortgage and compare upfront monthly payments with possible increases.

ARM Type	Fixed Period	Adjustment Frequency	Common Caps	Best For
5/6 ARM	5 years	Every 6 months	2/1/5 or 5/1/5	Buyers expecting to move or refi within ~5–7 years
7/6 ARM	7 years	Every 6 months	5/1/5	Buyers who want a longer "safety" window
10/6 ARM	10 years	Every 6 months	5/1/5	Buyers planning longer stays who are open to upfront ARM savings

Like fixed-rate mortgages, hybrid mortgages come in a few different flavors: conventional, FHA-backed, and VA-backed.

• Conventional ARMs are ideal for borrowers with a strong credit profile and larger down payment. Both Freddie Mac and Fannie Mae offer hybrid loans through conventional lenders.
• FHA and VA loans require smaller down payments but have additional fees (mortgage insurance and funding fee, respectively).

Currently, there are no USDA hybrid mortgage products available.

Summary

• A hybrid mortgage combines useful features of a fixed-rate mortgage and an adjustable-rate mortgage.
• Hybrid mortgages work best for people who expect an increase in income or an exit event (e.g., home sale, refinance) that'll get them out of the mortgage soon.
• You can get a hybrid mortgage with financial institutions that offer home loans like banks, credit unions and mortgage brokers.

Thinking about a 5/6, 7/6, or 10/6 ARM? Talk through scenarios with a vetted agent through Clever and decide with confidence.

FAQs