The typical commercial loan is a 3 or 5 years, amortized over a 20 year period. The after the 3rd or 5th year the loan balloons. This means you will either need to pay off your loan or refinance your loan. Today commercial borrowers are in a unique position to combine the benefits of a fixed rate mortgage with the adjustable rate mortgage. This is called a hybrid loan (also called a fixed-period ARM or hybrid ARM) you get the best of both worlds.
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A hybrid loan gives you a fixed rate term, usually one, three, five, seven or ten years, with adjustable rates thereafter.These loans are typically expressed as a 1/1, 3/1, 5/1, 7/1 or 10/1 ARM. The first number represents the number of years the rates are fixed. The second number indicates the adjustment interval (how often the interest rate will change). For a 7/1 loan, the fixed period is seven years with annual interest rate adjustments thereafter.
The advantage of a hybrid loan is that it gives you a lower fixed rate mortgage than youll typically receive with a 30 year mortgage.
Hybrid loans are also an attractive loan choice for borrowers who want a fixed rate for added protection of not having to pay off their by the end of the fixed year period.