A more thorough explanation:

A Hybrid Adjustable Rate Mortgage (Hybrid ARM) is a type of mortgage where the interest rate remains fixed for a certain period and then changes over time based on a market index. Unlike fixed-rate mortgages, which have a set interest rate for the entire loan term, and traditional ARMs, which automatically change the interest rate periodically without ever being fixed at a certain rate, Hybrid ARMs have a fixed interest rate for a specific amount of time.

For example, a 5/5 ARM means the mortgage has a fixed interest rate for five years, then adjusts every five years. The amount of interest usually changes based on a certain benchmark rate, such as for certificates of deposit or the Secured Overnight Financing Rate (SOFR). The new interest rate will be the benchmark plus an agreed-upon margin.

For instance, if the mortgage reaches an adjustment where the benchmark is at 5% and a margin of 1%, the new interest rate will be 6% until the next adjustment. Parties usually agree to a maximum amount the interest rate can increase every period (cap) or over the entire life of the loan (ceiling).

Many people choose Hybrid ARMs because they receive less interest than a regular fixed-rate mortgage in the beginning. However, as time passes, Hybrid ARMs may become more expensive than a fixed-rate mortgage if markets cause interest to rise after the fixed period ends.

For example, suppose a borrower takes out a 5/1 ARM with a starting interest rate of 3%. After five years, the interest rate adjusts to 5%, and the borrower's monthly payment increases. If interest rates continue to rise, the borrower's monthly payment will continue to increase, making the loan more expensive than a fixed-rate mortgage.