Breaking Down the VA Hybrid Loan
A VA hybrid loan combines the best of two worlds—the stability that comes with a fixed-rate mortgage and the lower interest rate that comes with an adjustable-rate mortgage.
A VA hybrid loan combines the best of two worlds—the stability that comes with a fixed-rate mortgage and the lower interest rate that comes with an adjustable-rate mortgage. With a fixed-rate mortgage, your payments are the same for the entire term of the mortgage—but this stability comes with a higher interest rate. An adjustable-rate mortgage’s lower interest rate can bring significant savings. There are built-in protections with the VA hybrid loan that help minimize your risk. First, interest rates are tied to the stable US Treasury Index rather than less-stable foreign indexes (which is where most conventional adjustable-rate mortgages come from). There are also lifetime caps on interest rate increases. Additionally, you can streamline out of the hybrid loan (refinance) any time you decide to do so. For more information about refinancing your VA loan, click here.
This loan has a guaranteed interest rate for the first five years and then switches to an adjustable rate, which resets annually. The 5/1 hybrid is a good option if you plan to resell or refinance your home within the first eight or so years of your mortgage because the interest rate is guaranteed for most of the time that you’re in your home. Because there is some risk associated with this kind of loan, it’s important to understand how high your mortgage could go. We’ll cover caps in the next section.
This loan has the lowest possible monthly payments (the shorter guaranteed time period brings the lowest possible rates). The first three years are guaranteed at a fixed rate, and then the loan’s interest rate will be reset annually. This is a good option for those who plan to stay in a home for around five years. It’s can also be a good option for those who need the lowest possible monthly mortgage payment. Once again, it’s important to understand how high your mortgage could go. Let’s now discuss Advantages and the caps we just spoke of.
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