Under normal interest rate climate, the interest rate of a 7-year fixed rate hybrid is usually lower than that of a 30-year fixed rate mortgage. The "7/1 ARM" is designed for homeowners who do not intend to keep their mortgages for more than seven years to take advantage of the lower interest rates during the initial seven years.

In additon to the 7/1 ARMS, there are also hybrid ARMS with different fixed terms, including 3/1 and 5/1. The 3/1 ARM has an initial fixed rate period of three years, with the remaining 27 years as Adjustable Rate Mortgage. It is also referred to as the 3/27. The 5/1 has a fixed rate period of five years, thereafter changes to an ARM for the remainder 25 years. It is also known as the 5/25.

As a rule of thump, the interest rate offered for this type of ARM is usually lower with a shorter fixed term. So a 7/1 ARM will have a higher interest rate than that of a 5/1 Hybrid ARM, and 5/1 would have an interest rate higher than the 3/1 ARM. This is only true in a normal economic climate where short term interest rates are lower than long term rates.

Statistics have shown that Americans keep their home loans on average for less than 7 years. For younger homeowners who plan to "trade up" their homes. A Hybrid mortgage with a 7-year Fixed Rate period, which usually have a lower initial interest rate than the 15-year Fixed and the 30-year Fixed, may be a better loan option.

Sometimes the rate differences between these hybrid type mortgages and fixed rate mortgage are so minimal that it may make more sense to obtain a fixed rate mortgage. So make sure that you ask about what all of your rate and program options are up front.