Hybrid ARMs continued to be the most popular loan product offered by lenders and chosen by ARM borrowers according to Freddie Mac’s 30th Annual Adjustable-Rate Mortgage (ARM) Survey of prime loan offerings, which was conducted January 6 to January 10,

Hybrid ARMs have an extended initial fixed-rate period — generally three to ten years — and then adjust annually thereafter. Nearly all of the ARM lenders participating in the survey offered a hybrid. The 5/1 hybrid (a five-year fixed-rate initial period before the rate resets annually) was by far the most common, followed by the 3/1, 7/1 and 10/1. Far less common were ARMs where the re-pricing frequency was fixed for the life of loan, such as a one-year adjustable, a 3/3 ARM (which adjusts once every three years), or a 5/5 ARM (which adjusts every fifth year).

Among the 106 ARM lenders surveyed, 84 offered Treasury-indexed ARMs and 22 London Interbank Offered Rate (LIBOR)-indexed ARMs; generally, community and regional lenders were more likely to offer Treasury-indexed ARMs while large, national lenders offered LIBOR-based ARMs. Thus, even though offered by fewer lenders, the LIBOR-based product accounted for more than one-half of ARM originations. LIBOR-indexed ARMs generally had a lower margin (about 0.5 percentage points lower) than Treasury-indexed ARMs, a similar initial interest rate, but a higher index rate (about 0.5 percent-age points higher).

In early January 2014, the interest rate savings for the 5/1 hybrid ARM with a 30-year term — the most common ARM offered in today’s market — compared to the 30-year fixed-rate mortgage amounted to about 1.36 percentage points. For a $250,000 loan, the monthly principal and interest payment on a 5/1 hybrid would be about $194 less than on the 30-year fixed-rate loan over the first five years of the loan.

http://www.realestateeconomywatch.com/2014/01/hybrid-arms-are-hot/