The VA Hybrid (ARM) Loan

What Is the VA Hybrid Loan?

The VA hybrid loan, which is also sometimes known as the VA hybrid ARM, is a  home loan option that combines the stability of a fixed-rate mortgage and the savings opportunities of an adjustable-rate mortgage into one loan. Together, it offers the best features of both loan types: lower rates than a fixed-rate mortgage and greater stability than a strictly adjustable-rate mortgage.

What Is the Difference between a VA ARM and a VA Hybrid Loan?

Many veterans used to get VA ARM loans where the initially-low interest rate started to change every year after the first year. These adjustment meant that veterans had to deal with the uncertainty of a new mortgage payment amount every year.

In comparison, the more modern VA hybrid loans allow a period of several years during which the interest rate stays the same, making your payments predictable during that time. The most common fixed-rate periods are for either 3 or 5 years, though it may be possible to find hybrid loans with fixed-rate periods of 7 or 10 years.

How Does the VA Hybrid Loan Work?

A conventional adjustable-rate mortgage (ARM) changes rates frequently. These changes are normally based on volatile foreign financial indexes. The VA hybrid loan, on the other hand, has a longer fixed period at the beginning of the loan and it is not affected by the foreign indexes. Instead, it's tied to the much more stable Treasury index.

VA hybrid ARM loans also carry guaranteed rate caps, which ensure that interest rates increase by no more than 1% per year. In addition to this annual rate cap, the VA hybrid loan also offers a lifetime rate cap of 5%, so you'll be protected from any skyrocketing rates for the entire life of the loan.

All in all, hybrid loans help veteran homeowners take advantage of rates that are even lower than the already-low rates attached to a conventional 30-year fixed mortgage. 

How Much Can My Mortgage Payments Increase During the ARM Period?

VA Hybrid ARM loans have a 1/1/5 cap set by the government, which means:

  • The interest rate can increase by a maximum of 1% during the first adjustment.
  • The interest rate can increase by a maximum of 1% during each subsequent annual adjustment.
  • The interest rate will never increase by more than 5% during the life of the loan.

How Can I Prepare for the Adjustable-Rate Period?

  • Check the Treasury index to see if rates are moving higher and decide if you can deal with any higher payments that could result.
  • Build up savings while your interest rate is lower to prepare for higher payments caused by higher rates.
  • Avoid the adjustable-rate period by refinancing your VA hybrid ARM into a fixed-rate VA loan before the switch occurs.*

*If you decide you want to refinance before the adjustable-rate period begins, you will need to make sure you'll qualify for a refinance loan.

The Benefits of a VA Hybrid Loan


Higher Monthly Savings

Having an even lower interest rate from the start means that veterans with fixed incomes can save the most amount of money each month.

Faster Debt Reduction

Because of the monthly savings from a lower initial rate, veterans have more money available each month that can be used to pay off other debts.

Accelerated Mortgage Payoff

Savings applied to the principal balance can help veterans pay off their homes even faster with no change in current monthly payment.

Limits to Rate Adjustments

After the fixed-rate period expires, the rate may only adjust by 1% once per year. In addition, it can never be adjusted by more than 5% beyond the initial rate.

Faster Breakeven Periods

Because it offers lower rates than a traditional fixed-rate mortgage, and has no additional fees, the VA hybrid loan pays for itself even faster.

Potential Rate Decreases

VA hybrid loan rates don't just increase—they can also decrease. In recent years, many veterans with hybrid loans have seen their interest rate go down.

Try Our VA Hybrid Simulator

See what your mortgage payment might look like if you got a VA hybrid ARM home loan. If you like what you see, you can apply for a hybrid loan through our very short and easy-to-understand application process.

VA Hybrid Simulator

The 5/1 Hybrid Loan

When you see a 5/1 hybrid loan, the first number in the name tells you that the loan has a 5-year fixed-rate period. The second number then tells you how often the rate can be adjusted after it moves into the adjustable-rate period. So, for this loan, it can only be adjusted once per year after the fixed-rate period ends.

The 5/1 hybrid loan is the most popular hybrid options among veteran homeowners. This is especially true for veterans who think they'll want to sell or refinance within the next 8 years. If you don't expect to be in the same house or with the same mortgage for very long, the 5/1 hybrid loan is a good option because it ensures five years of a good rate and predictable payments, with the possibility of transitioning into a better rate down the road.

The 3/1 Hybrid Loan

The 3/1 hybrid loan is very similar to the 5/1, except that it only guarantees a fixed-rate for 3 years. However, even though the fixed rate period is shorter, the trade-off is that you get an even lower interest rate that with the 5/1 hybrid. In fact, it has the lowest initial interest rate of any VA home loan.

This loan is also a good option for veterans dealing with heavy amounts of debt or for those who move around a lot for work. Active duty military personnel expecting to be transferred find their needs are well accommodated by the 3/1 hybrid loan.

Learn More about VA Hybrid Loans

Loan officers at Low VA Rates are committed to any loan program that helps veterans save money on their mortgages. We believe the VA hybrid loan is a great program designed to put more money in veterans’ pockets and help them pay off their home faster than they might otherwise.

If you would like to learn more about the VA hybrid loan, give us a call now at 855-836-0756.

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