What’s A “Combo” Mortgage?
Usually, when one talks about a “combo” loan such as 5/1, 7/1, or 10/1 financing, what’s meant is a deal that works like this — a fixed rate for the first five, seven, or ten years and then a transition to a one-year ARM, usually based on the Treasury or LIBOR index, for the balance of the full 30-year loan term.
However — be careful. There are some loan products which do not convert automatically to a one-year ARM. Instead, they require lender approval of your credit to continue or have other clauses that effectively allow the lender to call the loan — which means the loan is nothing more than a potential balloon note! If the lender does call the loan at the end of the initial term, you could be forced to refinance, sell your home, or face foreclosure.
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