Service Members And Home Purchases: Is A VA Hybrid Loan What ...

For service members, a VA hybrid loan is more flexible than typical VA loans, but more stable than conventional loans. But what are the differences, and is the VA hybrid loan ideal for you?

An Adjustable Rate mortgage, a.k.a. as an ARM, is a mortgage that features an initial fixed term, adjusting thereafter. The initial fixed-rate term for a VA hybrid loan is set for the course of either three or five years. When you crunch the numbers, this is a fixed period of either thirty-six or sixty months, respectively. In either case, an interest rate for this kind of loan will not fluctuate during the initial term. For example, an interest rate of 3.75 percent would not be subject to market fluctuations from the outset. The resulting mortgage payment would be based on this initial rate and would not change monthly. Once the fixed term expires, this rate will start to adjust. However, a loan backed by the Veteran's Administration Department should not be confused with conventional or subprime adjustable-rate loans.

For good reason, a lot of veterans are leery of loans that are not of the traditional, VA variety. However, always remember the following: The VA requires approved mortgage lenders to use a stable market index whenever offering hybrid loans to veterans. From a historical stand point, the Constant Maturity Treasury Index (CMT) is one of the more stable indices inside the financial marketplace.

So, what does this suggest for the veteran homeowner? Although a hybrid loan will adjust AFTER the initial fixed term, historical data indicates that this movement will not exceed one percent for initial fixed terms of thirty-six months or less. For loans with initial fixed periods of five or more years, CMT data trends suggest that interest rates do not fluctuate more than two percentage points annually. Again, keep in mind that this occurs AFTER the initial three or five-year, introductory period. Additionally, many forget to consider the fact that adjustable does not mean that an interest rate must adjust one way or the other. Rates can increase, but rates can decrease in accordance with market performance.

As with any major financial decision, it is best to review your budget before becoming indebted for a large sum of money. If you have additional questions concerning a VA hybrid loan, we recommend talking with industry professional. Remember to take time to learn about a particular mortgage product or program before submitting a completed loan application. And remember, a knowledgeable veteran is a happy home purchaser in the end.

Source: http://www.artipot.com/articles/1174897/service-members-and-home-purchases-is-a-va-hybrid-loan-what-you-need.htm

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