Utah Home Loans | VA Hybrid ARM
February 24, 2018 801.473.3154dana@utloanofficer.com First Class Home Mortgage (NMLS 1843) | South Jordan, UT

VA Hybrid ARM

Home / VA Hybrid ARM

Most people are still very cautious when it comes to adjustable rate mortgages (ARMs).

Things have changed a lot after the mortgage breakdown, and risky, predatory loan products have long since been eliminated.

The VA hybrid ARM can be an excellent tool as long as you understand its strengths and weaknesses. Here is how it works.

The VA hybrid ARM is a 30year loan. Your interest rate will remain unchanged for the first 5 years, after which it will start adjusting once every year, based on the movements of the Constant Maturity Treasury index  (CMT). This is an index with a very stable history of fluctuations.

Your mortgage interest rate can both increase and decrease, but only by 1% at a time. The increase is capped at a maximum of 5% over your initial starting rate.

The starting interest rate on a VA ARM is usually about 1% lower than the 30year fixed rate, offering a significantly lower monthly payment advantage.

 When does a VA hybrid ARM benefit:

- If the borrowers income is expected to increase in the next years, a lower initial payment may come in handy;

- If the borrower doesn’t expect to occupy property more than 5 years, or is willing to refinance before the loan starts adjusting

- If the borrower is looking to pay down the loan faster – any additional payments will go directly towards the principal balance. I would however suggest the 15year term is that is the case.

Cons: your interest rate might go up with time, and so will your mortgage payment. People on a fixed budget will find this stressful.

My advice is to keep an open mind, and consider all possibilities. The important thing is to focus on the right solution for your particular situation.

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