For service members, a VA hybrid loan is more flexible than typical VA loans, but more secure than conventional loans. But what exactly is a VA hybrid loan, and why should I consider one?
An ARM, or Adjustable Rate Mortgage (ARM), is a mortgage where the interest rate is set for the initial period. The initial fixed-rate term for a VA hybrid loan will be set for the course of either three or five years. When you think of it in terms of months, this means either a fixed term for thirty-six or sixty months. In either case, an interest rate for this type of mortgage will not fluctuate during the initial term. For example, if your mortgage rate is locked in at 3.75 percent, it will stay at this rate for the specified term. This means your payment will be for a designated sum, which is conveniently predictable. After this time, the mortgage rate will begin to adjust. However, do not confuse VA loans with traditional or subprime, adjustable-rate mortgages.
Many veterans proceed with caution at the very notion of an adjustable rate mortgage, and a bit of trepidation is always good. But one thing should be at the forefront of your mind: The VA requires approved lenders to use a market index that has a track record for stability and reliability when writing a hybrid loan. From a historical perspective, the Constant Maturity Treasury Index (CMT) is one of the more stable indices inside the financial marketplace.
So, does this mean that the service member?s interest rate will not fluctuate? What this means is that AFTER the initial, fixed-rate period, CMT data trends suggest that hybrid-loan interest rates do not fluctuate more than one percent annually. For initial fixed terms of five years or longer, historical data suggests that your interest rate will not fluctuate more than two percent annually. Again, the adjustment period begins AFTER the initial three or five year introductory phase. Additionally, many forget to consider the fact that adjustable does not mean that a mortgage rate must adjust one way or the other. While an interest rate can adjust upwards, it can also adjust downwards.
The home-purchasing process can be nerve racking, but proper preparation will lessen the uncertainty involved. If you need more information about the VA hybrid loan, or would like to explore your homebuying options, we recommend consulting VA loan expert. Remember to take time to learn about a particular mortgage loan or program before submitting a completed loan application. Arm yourself with the necessary information, and you?ll be well on your way to purchasing a home with the mortgage product that is right for you.
VA Home Loan program makes it easier for veterans to qualify for home financing with less stringent income and credit qualifications; just check out va hybrid loan as well as va loans.
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