A VA Hybrid ARM loan is a special type of loan that offers the low rates of an adjustable mortgage, coupled with the security of a fixed rate loan. In the case of a VA Hybrid ARM loan, the loan is fixed for a few years, and then it turns into an adjustable rate mortgage after that. The rate can then change each year, on its anniversary date based on index, margin, and cap.
There are limitations on how much the interest rate can adjust. Once the initial fixed rate term is up, the loan may only go up or down by a maximum of 1% per year. In addition, there is a fixed lifetime cap at 5% over the starting interest rate. This means that the loan can never be adjusted to more than 5 points higher than it was when it was when it was first obtained.
You can choose from several options, the most popular of which are the 3/1 ARM and 5/1 ARM.
How does a 3/1 VA Hybrid ARM loan stack up against the 30-year fixed in terms of savings? Let's take the worst case scenario and assume interest rates are rising at their maximum pace. It would take at least 5 years before interest rates catch up with their 30-year fixed counterparts! And it would take another three years before you would even begin to equate the 30 year loan in interest payments.
On average, most people keep their home for 6 years before they decide to sell and move. And very few people tend to keep their same mortgage, even if they do decide to remain in their homes for the full 30 year term.
If you'd like to know how much you could be saving with a VA Hybrid ARM, contact one of our loan officers.