Hybrid loans combine features of both adjustable and fixed-rate mortgages. It may start with a fixed-rate for a certain length of time and later convert to an adjustable-rate. You need to ask how much the rate may increase after the conversion. Some hybrid loans do not have interest rate caps for the first adjustment period.
Other hybrid loans may start with a lower fixed interest rate and then change to a higher fixed interest rate for the remainder of the loan. A hybrid loan starts with a lower introductory rate when compared to traditional fixed-rate loans. This is an attractive option for homeowners looking to stay in the home for a short time and can pay off the majority of the loan before the interest rates changes.