Understanding the VA Hybrid Loan

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The VA Hybrid Loan is a great option for many military homeowners to assist veterans in saving hundreds of dollars per month. However, there are many misconceptions and negative perceptions surrounding the VA Hybrid Loan.

Many military homeowners assume any loan outside of a 30-year fixed loan is toxic and a bad option. This is not true and many homeowners are steering away from loans that may be better options for their specific circumstances.

The VA Hybrid e-book was created to give homeowners all the details about the VA Hybrid loan and try and explain the benefits to veteran homeowners. We hope you enjoy the e-book and have a greater understanding of the VA Hybrid Loan.

Click Here to View the e-book

 

VA vs. Conventional ARM Loans

VA Vs. Conventional: The ARM Loan

 

The VA loan program has a very different offering in terms of ARM (adjustable-rate mortgage) loans than the conventional loan program. Why is this relevant? Because the VA’s ARM option (technically called a ‘hybrid ARM’) is significantly better than the conventional ARM option. To adequately explain how a VA ARM is better than a conventional ARM, we’ll first go over some ARM basics, then talk about the conventional ARM, then talk about the VA ARM.

 

ARM Basics

An adjustable rate mortgage is exactly what it sounds like; a mortgage in which the interest rate periodically adjusts. An ARM is the opposite of a fixed-rate mortgage. ARMs have typically been given a pretty bad rap, and in fact are often what people point fingers at to blame for the housing market bubble bursting. While the role ARMs played in the housing bubble is debatable, the fact that some ARMs are better or worse than others is indisputable. ARM loans typically are limited to annual adjustments, and usually have a lifetime cap of how high they can rise above their starting rate, as well as adjustment ceilings for how much it can fluctuate. ARM interest rates are calculated by combining the margin a lender offers at the beginning of the loan, which can’t change after closing, with the index being used for that ARM loan. With those basics out of the way, let’s talk about the different offerings.

 

The Conventional ARM

Conventional ARMs are generally not that great. Both VA and FHA ARMs have the leg-up on on Conventional ARMs. The conventional ARM usually adjust once per year, but the frequency of rate adjustments is something to keep an eye on if you’re applying for one. When a conventional ARM adjusts, it can go as much as 2% higher than it was previously, which can make for some drastic increases depending on the market activity. However, the conventional ARM does have a lifetime cap of 5% higher than the starting rate, so no matter what the market does, your loan can never be higher than 5%. Conventional ARMs typically start with a fixed period of 3-10 years, after which the rate starts adjusting. It’s important to know that on a conventional ARM, the very first year it adjusts, it can adjust as far as it needs to to catch up with where the market is at that time, up to the 5% lifetime cap. In other words, even the minimal 2% annual cap protection is not present in the first adjustment. The conventional ARM uses the LIBOR index, which can be volatile and result in less predictable adjustments.

 

The VA Hybrid ARM

The VA Hybrid ARM is a different story. VA ARMs also adjust once per year, but they have an annual adjustment cap of no more than 1% higher, and that protection is in place for the first adjustment after the fixed period. Fixed periods on VA ARMs are typically shorter, between 3 and 7 years, but starting interest rates are even lower than on conventional ARMs. VA ARMs share the 5% lifetime cap with conventional ARMs, but when combined with a 1% annual adjustment limit, this is a far more reasonable limitation. VA ARMs use the 1-year CMT for their index, which is an average of the CMT activity for the last 12 months. This averaging makes the CMT much more smooth and less volatile than the LIBOR, which results in easier-to-predict adjustments that generally aren’t as likely to jump up or drop down very drastically.

 

It’s All In The Numbers

If you want to know for sure how much better a VA ARM would be for you than a conventional ARM, apply for an ARM with two different lenders, one conventional and one VA, and that will be your proof. ARMs are great in that they start with (usually) a much lower interest rate than fixed-rate mortgages, with the tradeoff that they can adjust over time. If you have the protections built-in that the VA ARM comes with, the risk of suddenly having a payment you can’t afford is much, much lower, and the chances that you’ll end up paying more in the long run for your ARM is much lower as well.

 

Everything You Need to Know About Fixed-Rate Mortgages

Fixed-Rate MFixed Rate Mortgageortgages

Bread and butter of the American home loan industry. Just about everyone has a fixed-rate mortgage, and the majority of people say that it’s definitely the way to go. In this article, we’re going to cover the things that you really need to know about fixed-rate mortgages to help you decide if you want to get a typical fixed-rate or if you want to go out of the box a little bit on something else.

A Fixed-Rate Mortgage is Your Most Expensive Option

Fixed-rate mortgages are very expensive to get. Closing costs on a fixed-rate mortgage are much larger than they are on an ARM loan, interest rates are usually higher on a fixed-rate than on an ARM, and the amortization schedule on a fixed-rate means that your interest payments are a huge percentage of your monthly payment at the beginning of the loan. On a 30-year fixed with a 4.25% interest rate, if your principal+interest payment is $950, the portion of it going to the principal at the beginning is going to be between $200-$250. When you consider that it’s between year 10 and year 15 that balance shifts so that you’re paying the  principal more than the interest, and that the average American either refinances or moves every 3.6 years, you can make very little progress and build very little equity in your home even over a long period of time. There are some nice things about fixed-rate mortgages, but don’t let people convince you that there isn’t a significant cost for those benefits.

 

Fixed-Rates are Very Predictable

The term ‘fixed-rate’ refers to the interest rate on the loan, in that it is fixed throughout the entire loan term. Much of the reason why fixed-rates are so expensive to get is because lenders want to compensate for the chance that interest rates (or inflation) may rise above what the interest rate on your home is, and that puts them in a less favorable position. If you want to budget, and you want to know what your monthly payment definitely will be for as long as you want it to be, fixed-rates make planning for the future very straightforward. Granted, you pay a very high price for this convenience. The real value in fixed-rates is that they protect you from the possibility of rising interest rates in the future. However, you should keep in mind that rising interest rates are only a possibility, and if and when they do come, they could be 10 to 15 years down the road.

 

A 30-year Fixed-Rate Mortgage Should Not be Your Default Choice

30 Year VA Home LoanDid you know that many developed countries have laws against 30-year fixed-rate mortgages? Seriously, it’s because the cards are stacked so highly in the lenders’ favor. Depending on your interest rate, you can easily pay as much in interest over the life of the loan as the amount your house was sold to you for. The first things you should look at are the terms you can get on an ARM loan. Interest rates on a conventional ARM are usually at least a full percent below a 15-year fixed, and 1.5% below a 30-year fixed, sometimes more. ARM loans are also fixed for the first 5 years, which means you skip out on the period of the loan that you’re paying the most interest. If ARM rates aren’t significantly lower than fixed rates, and you don’t want to take the risk, your next choice should be to look at a 15-year fixed. You can get a lower interest rate on a 15-year than a 30-year, and save a boatload of money in interest over the life of the loan. Only move from a 15-year to a 30 if you cannot afford the higher monthly payment on a 15-year. Scrimping and saving to manage the payment on a 15-year is usually worth it in the long run.

 

Conclusion

There’s a lot more to know about fixed-rate mortgages, but the above is really all you need to know. Fixed rates are more expensive both in the short term and usually the long term than an ARM, fixed-rates are much more predictable than an ARM and can be worth it for a person looking for that reassurance, and a 30-year fixed should never be your default choice.

 

VA ARMS

VA ARMS comes in several flavors. It’s hard to simply list what kinds of hybrid ARMs are out there, because there’s more than one set of options to choose from. You can choose how long the note rate lasts, you can choose what note rate you want to start with and thus what margin you’ll be offered after the fixed period expires, and you can choose how you want to use your hybrid loan to work best for your goals. First, we’ll cover the differences between the note rate terms, then talk about how the note rate and margin work together, and then we’ll cover different ways you can use your hybrid ARM to make it the most appropriate for your future plans.

 

ARM VA Loan TypesVA ARM Loan Options

There are many Hybrid ARM myths out there but VA ARMS are actually a great loan option in the right situation. Understanding which Hybrid arm is right for you is the first step. There are many VA ARMS to choose from, you can choose between a 3/1 hybrid ARM and a 5/1 hybrid ARM. What am I talking about? Well, the first number (either 3 or 5) is the number of years that your interest rate remains fixed. The second number (“1” in both cases), indicates the maximum amount that the interest rate can be adjusted each year following the fixed period. So for a 3/1 hybrid ARM, the initial interest rate will remain fixed for 36 months, then will adjust by no more than 1% each year, while a 5/1 hybrid ARM will remain fixed for 60 months, then adjust by no more than 1% each year. Which one you choose depends on a number of factors, not least of which is how long you intend to remain in the house. You are able to refinance at any time, and since the IRRRL allows you to roll closing costs into the loan amount, you can really do an IRRRL anytime you want to. Remember though, that the lender may likely offer you a better starting interest rate and margin on a 3/1 hybrid ARM than a 5/1. You’ll want to speak with the VA-approved lender you’re planning on working with to find out.

Next, once you’ve chosen whether to go with a 3/1 or 5/1, you will likely be presented with at least two options on what you want your starting note rate to be. The note rate is the fixed interest rate used during the initial period of the loan. You may think that you definitely want to choose the lower option, but that may not be the case. Often, lenders offer a lower margin (one component of how the interest rate is calculated after the fixed period) in exchange for a higher note rate. For example, on a 3/1 hybrid ARM, Low VA Rates offers to note rate options: a 2.25% and a 1.75%. The margin paired with the higher note rate is 2%, while the margin paired with the lower note rate is 2.25%. Which one ends up saving you the most money? It’s a numbers game, and any of our loan officers would be more than happy to work it out with you to decide which is likely to be your best option.

Choosing the Right VA ARMS

As far as the “official” options that you can choose from, that about covers it. However, you have a lot of options in how you handle your hybrid ARM once you have it. Are you planning on selling your home and moving in the next 5-7 years? Not selling but hoping to refinance soon? Hoping to keep the loan and not need to move or refinance until the loan is paid off and the home is yours? Depending on your answers to those questions, you can decide if you want to use the money you save each month (from having a smaller mortgage payment) to pay off extra principal on the house, improve the house, or spend it on something else. If you’re planning on selling the house, you may want to put that money towards improving the home to increase its sale value. You can also pay off principal faster to save yourself interest in the short run, but putting the extra money towards principal gets much more beneficial after about 7-8 years, since that’s when it starts to take a noticeable chunk out of how much interest you’re being charged. Perhaps, if you’re only planning on being on the home for a few years, you just want to take advantage of the lower monthly payments and have $200 more fun-money each month. It’s all up to you.

 

FAQ; What if a hybrid ARM rate goes up

What if Rates Keep Going Up?

 

FAQ_ArmsLet’s get to the root of this question: How big is the risk you’re taking by getting a hybrid ARM instead of a fixed-rate? Well, let’s talk about it. First, we’ll talk about the safeguards that the VA has put in place on a hybrid ARM to protect borrowers from getting sky-high interest rates, then we’ll take a look at what the CMT index has done over the last little while to get a feel for how likely it is that it’s going to jump up a large amount over an extended period of time. Finally, we’ll wrap up by talking about whether it’s worth the risk and what is the smartest thing to do for your mortgage.

 

The VA has put some very important safeguards in place to make sure that VA borrowers are not put in a bad spot by getting a hybrid ARM. The first safeguard is actually the initial fixed period itself. At the beginning of the loan, more of your monthly payment is going towards interest than at any other time during the loan, so getting an insanely low interest rate for the first 3-5 years can save you a lot of money in a very short amount of time. After the initial period, the VA hybrid ARM can only be adjusted once each year, and cannot adjust more than 1% in any given year. This means that even if rates skyrocket after your fixed period, you’ll be the tortoise chasing the hare. Lastly, the VA does not allow an interest rate to increase more than 5% over the life of the loan, even if market rates go much higher than that. Considering that you have up to 5 years at a fixed rate, then it would take a minimum of 5 years for the interest rate to rise the full 5% (by the way, this has never happened in the history of the CMT index – ever. Literally, your chances of dying by getting hit by a meteor are higher than this happening.) So it would take 10 years for your loan to max out by then, and since the average time between refinances or moves for american families is between 3 and 5 years, you will probably have moved or refinanced by that point anyway.

 

So how has the CMT index performed over the last while? Well, below is a graph that shows you what the CMT index has done since February of 1992. As you can see, while there are years where the CMT does go up, it has never gone up for more than 3 years in a row. The specific color you should be looking at is the blue line, which indicates the 1-year CMT that will be used to calculate your hybrid ARM index.

 

So the CMT index does not have a habit of increasing for very many years in a row. While the index can jump several percentage points in just one or two years, it doesn’t generally maintain growth for longer than 2-3 years.

 

What does all this mean? Well, since the hybrid ARM is limited to increase more than 1% each year, it doesn’t matter if the index jumps 1% or 10% in a year; you’ll only go up 1%. As long as the index comes back down (which it has for the last 22 years), your rate will go down as well. While it may go up slowly over time, we’re talking between 15-25 years, and by then you’ve saved so much money over your fixed-rate buddies that you’ll almost certainly still come out ahead. Asking “what if” about the worst-case scenario with your rate is an exercise in futility in this case. While planning for the worst is often a good practice, it can be taken to extremes, and this is one of the cases where trying to “plan for the worst” is just going to rob you of opportunities and benefits you could otherwise enjoy. Much like refusing to leave your house because you might get hit by a car, deciding against a hybrid ARM because you’re afraid of your rate rising as far as it can as fast as it can is more paranoia than caution.

 

Understanding VA Hybrid ARMs – Terminology

Understanding VA Hybrid ARMs – Terminology

 

VA ARMs TerminologyThe hybrid ARM offering in the VA loan program is one of the best-kept secrets of the program. Utilizing the VA hybrid ARM can save you as a borrower tens of thousands of dollars. The purpose of this article is to go over the terms you need to understand in order to make a good choice about your VA hybrid ARM, and to explain the basics of how a VA hybrid ARM works. For more details on these terms and about the VA hybrid ARM, check out our video on YouTube. The first thing we need to define is what hybrid ARM. ARM stands for adjustable-rate mortgage, and is the opposite of a fixed-rate mortgage. A traditional ARM (not a hybrid) has an adjustable interest rate that usually adjusts annually to match or come closer to market rates at that time. A fixed-rate mortgage is more common; the borrower is locked into a certain interest rate during the application process and has the same interest rate for the entire duration of the loan, independent of market fluctuations. A hybrid ARM is somewhere in the middle of a traditional ARM and a fixed-rate mortgage.

 

In a VA hybrid ARM, the interest rate is fixed for a certain number of years at the beginning of the loan, then adjusts annually throughout the rest of the loan. You have the ability to choose how many years the interest rate will be fixed, and there will be several options of which note rates to choose from. You’ll also want to check out the differences between the margins you are being offered by different lenders, make sure they are charging the same index, and make sure they are following VA guidelines in terms of adjustment caps, frequency, and ceilings. If nothing in the last sentence made sense to you, you are in the right place. We are going to cover the terms you just heard so you can understand them when your lender uses them.

 

The term “note rate” refers to what the initial interest rate for the fixed period will be. On a 3-1 hybrid ARM, the interest rate will remain fixed for the first three years of the loan, then be adjusted annually afterwards, no more than 1 percentage point in either direction. Usually lenders will offer two or three different options for a starting note rate, and while it may be tempting to choose the lower one, there are other factors you need to consider when doing so – sometimes it may actually save you money in the long run to choose a higher note rate in exchange for a better margin come later. We’ll cover what a margin is in a moment, but first, the note rate for VA hybrid ARMs is usually either 2.25% or 1.75%. You read that correctly, the higher of the two (2.25%) is a full two percentage points lower than what the conventional mortgage arena is offering for fixed-rate mortgages. This is the first reason why hybrid ARMs are so advantageous.

 

The terms “margin” and “index” are closely related. Margin and index are added together to determine your interest rate after the initial fixed period. To clarify, on a 3-1 hybrid ARM, after three years, the note rate disappears and never returns, and is replaced with a new rate calculated by adding together the margin and index. Now, what is the margin? The margin is determined by the lender, and is essentially what they’re willing to offer you on the loan. The margin should not change throughout the loan; it should remain constant. The margin the lender offers you will depend greatly on which note rate you choose. If you choose the 1.75% note rate, you will likely be offered a higher margin than if you had chosen the 2.25% note rate. It’s a numbers game, but crunch them to find out if the lower rate for the first three years is worth the higher margin for the rest of the loan term. Right now, LowVARates is offering a 2% margin if a qualified borrower chooses a 2.25% note rate.

 

The index is how the lender keeps the interest rate current with the market as it fluctuates. The VA loan program uses the CMT index, which is not really that important to know except that it tells you that you shouldn’t worry too much about volatility. The CMT index is calculated annually and averages all 12 months in the year, which makes it representative of trends rather than isolated events. Currently, the CMT index is at .1%. So if three years ago, you chose a 2.25% note rate on a 3-1 VA Hybrid ARM, your interest rate would actually drop to 2.1% (margin+index) this year.

 

You’ll also hear the terms “caps”, “ceilings”, and “floor” in relation to your interest rate. What you need to know is that in the VA loan program, your interest rate is not allowed to adjust more than 1% in each direction each year, and cannot increase by more than 5% over the life of the loan.

 

Common Myths about VA Hybrid ARMs Debunked Part 2

Common Myths about VA Hybrid ARMs Debunked Part 2

 

This is the second of two articles about common myths about VA hybrid ARMs. For more information on these myths and an interesting presentation, check out our video on YouTube. The first two myths were covered in the first article; these are the last two, starting with number three.

3. If I want to pay my house off faster, then I should use a fixed rate on a shorter term.

 

 

Again, this is not true. The reason is simple. Your ability to pay off your home faster than the minimum is based on basically two things: the minimum payment, and your income. Since your income is probably independent of the choice between a fixed-rate or a hybrid ARM, the only thing that changes is the minimum payment. Your minimum monthly payment is primarily principal+interest. If you are at a lower interest rate, your minimum payment will be lower as well.

 

In the above example, where the fixed-rate is at 4.5% and the VA hybrid ARM is at 2.25% for the first three years, the hybrid ARM will have a significantly lower minimum payment than the fixed. What does that allow you to do? Pay more than the minimum payment! Just by paying the amount you would have paid (or have been paying) on the 4.5% fixed-rate, you can pay off more principal faster on a hybrid ARM. Plus, since it is extremely unlikely that interest rates will go up consistently for seven years in a row, you could be 10 years into the loan before your hybrid ARM rate gets as high as the fixed-rate was at the beginning! By then, if you’ve paying what you would have paid on a 4.5% fixed-rate, you may only have 5 or 10 years worth of payments left, and far less principal to be charged interest on than you would have otherwise.

4. A 30-year fixed rate is safer and better for someone to forecast or plan for the future.

 

 

This is a myth that is present mostly here in the United States. It is no coincidence that the U.S. was also hit the hardest by the housing crisis. This myth is devastating because of the simple fact that nobody is ever really paying off the same loan over 30 years – by far (like 99%), most people who purchase homes get a new loan every 4-6 years. This is why the VA offers both 3-year and 5-year hybrid ARMs, whose rates remain fixed at a much lower rate during the initial period – until about the time most borrowers are going to be refinancing or selling anyway. But even for those very few who keep the same loan beyond 6 years, the VA has built in protections to make sure that those borrowers aren’t hit too hard by changing interest rates.

 

First, as mentioned above, the VA uses the CMT index, which is a fairly gentle and non-volatile index, to calculate its rates. The CMT index prevents volatility by averaging activity over 12 months to calculate a yearly average. This yearly average is what is used as the index on VA hybrid ARM loans. Second, the VA places an annual cap that prevents interest rates from rising by more than one percentage point each year. Also mentioned above, this limitation means that even if interest rates are skyrocketing, it could still take years to get as high or exceed the interest rate you’d be dealing with on a fixed-rate mortgage. Third, the VA loan program puts a ceiling on how high the interest rate can ever go. If your hybrid ARM started at 2.1% after the initial fixed period, it could never go higher than 7.1% no matter what interest rates are doing. This is an extremely valuable protection not only for the money it saves in case interest rates do skyrocket and stay there for an extended period of time, but also so you can forecast and plan for the worst-case scenario. You can know with 100% surety what you are risking with a hybrid ARM.

 

Conclusion

Hybrid ARM VA Loan: Lower Interest Rates Save you Money
As a bonus for those who are still not convinced, think of what you can do with all the saved money from a lower interest rate. Imagine taking the money that you would have been spending on a higher monthly payment with a fixed-rate mortgage and paying off your credit card debt. Credit cards can have interest rates in the 20% area – especially for delinquent amounts. Taking money saved with a lower mortgage payment and using it to pay off credit cards can save you a ton of money in both the short-run and the long-run.

Hybrid ARM Loan Common Myths

Hybrid ARM loans have plenty of myths and misconceptions about the hybrid loan  that have been perpetuated both by well-meaning but misled individuals and by intentionally deceiving parties that stand to profit by having fewer borrowers choose any kind of adjustable-rate mortgage. This article will address two of the four most common myths about ARM loans in general, but primarily about the VA hybrid ARM program.

 

1. My Hybrid ARM Loan Payment Will Go Up When My Rate Starts to Go Up.

While this certainly can happen, and even happens with some frequency, your monthly payment can actually stay lower than it would have been on a fixed-rate mortgage even if the rate goes up. Considering that as of the writing of this article, a common interest rate on a fixed-rate mortgage is 4.5%, and the most common starting rate on a VA hybrid ARM is 2.25% for the first three years, the hybrid ARM rate would have to literally double before it got as high as the fixed-rate mortgage.

VA Hybrid ARM Common Myths

The VA hybrid ARM program limits the amount a rate can adjust to one percentage point each year. In other words, after three years of 2.25% (which already saves you a bundle of money), the highest it could jump to is 3.25%, still a solid 1.25% lower than what you’d be paying on a fixed-rate. Even if it jumps a full percentage point at the end of the three  years, and another full percentage point the year after that (pretty unlikely scenario, by the way), you would still be going into your fifth year on the mortgage with a rate of 4.25%, still a quarter of a point lower than where you would be on the fixed-rate mortgage. Remember that more interest is paid at the beginning of the loan that at any other point, and your monthly payment will most likely stay lower than your fixed-rate payment.

2. My Hybrid ARM Rate Will Definitely Go Up.

This is not true. While rates can go up, rates also go down as well. This is shown throughout history to be the case. The VA loan program calculates its interest rates based on the CMT index, which is calculated on an annual basis. From 2001-2011, the CMT index went down for seven out of the ten years, and continued to go down in subsequent years. As of the writing of this article, the CMT index is currently at .1%, which is incredibly low. In all of U.S. history, only once has the index increased a full percentage point for more than two years in a row. So it is certainly possible that your interest rate will go up, but it is also very possible that it will go down.

The VA has put numerous protections in place on the hybrid ARM program to keep it a good deal for eligible VA borrowers. Even if your rate does go up, it cannot go up more than 1% each year, and it is extremely unlikely (as in it has happened once in the history of the United States) that the rate will go up a full percentage point for two years or more. The VA also places a limit on hybrid ARM rates, so that they can never be more than five percentage points higher than what they started at.

3. I Should Use a Fixed Rate With Shorter Term If I Want to Pay Off My Home Faster.

Again, this is not true. The reason is simple. Your ability to pay off your home faster than the minimum is based on basically two things: the minimum payment, and your income. Since your income is probably independent of the choice between a fixed-rate or a hybrid ARM, the only thing that changes is the minimum payment. Your minimum monthly payment is primarily principal+interest. If you are at a lower interest rate, your minimum payment will be lower as well.

In the above example, where the fixed-rate is at 4.5% and the hybrid ARM is at 2.25% for the first three years, the hybrid ARM will have a significantly lower minimum payment than the fixed. What does that allow you to do? Pay more than the minimum payment! Just by paying the amount you would have paid (or have been paying) on the 4.5% fixed-rate, you can pay off more principal faster on a hybrid ARM. Plus, since it is extremely unlikely that interest rates will go up consistently for seven years in a row, you could be 10 years into the loan before your hybrid ARM rate gets as high as the fixed-rate was at the beginning! By then, if you’ve paying what you would have paid on a 4.5% fixed-rate, you may only have 5 or 10 years worth of payments left, and far less principal to be charged interest on than you would have otherwise.

4. The 30-Year Fixed Rate is a Better & Safer Loan

This is a myth that is present mostly here in the United States. It is no coincidence that the U.S. was also hit the hardest by the housing crisis. This myth is devastating because of the simple fact that nobody is ever really paying off the same loan over 30 years – by far (like 99%), most people who purchase homes get a new loan every 4-6 years. This is why the VA offers both 3-year and 5-year hybrid ARMs, whose rates remain fixed at a much lower rate during the initial period – until about the time most borrowers are going to be refinancing or selling anyway. But even for those very few who keep the same loan beyond 6 years, the VA has built in protections to make sure that those borrowers aren’t hit too hard by changing interest rates.

First, as mentioned above, the VA uses the CMT index, which is a fairly gentle and non-volatile index, to calculate its rates. The CMT index prevents volatility by averaging activity over 12 months to calculate a yearly average. This yearly average is what is used as the index on VA hybrid ARM loans. Second, the VA places an annual cap that prevents interest rates from rising by more than one percentage point each year. Also mentioned above, this limitation means that even if interest rates are skyrocketing, it could still take years to get as high or exceed the interest rate you’d be dealing with on a fixed-rate mortgage. Third, the VA loan program puts a ceiling on how high the interest rate can ever go. If your hybrid ARM started at 2.1% after the initial fixed period, it could never go higher than 7.1% no matter what interest rates are doing. This is an extremely valuable protection not only for the money it saves in case interest rates do skyrocket and stay there for an extended period of time, but also so you can forecast and plan for the worst-case scenario. You can know with 100% surety what you are risking with a hybrid ARM.

 

VA Hybrid Loan Tips To Think About

Hybrid ARM VA Loan: Lower Interest Rates Save you Money

As a tip on how valuable a lower interest rate is, remember that interest is nothing but poison. Paying interest is exactly like throwing money out the window or lighting it on fire rather than using it. Any interest you pay is lost money that you worked hard for and earned and got nothing from it. There are two types of people in this world – people who pay interest and people who collect it – and guess which group is wealthier. Obviously, creditors have a right to charge interest, since that’s how they get paid for their services. Creditors allow you to have something now, instead of having to save for it and get it later. For that privilege, they charge interest, and that’s how they make money, and there’s nothing unethical or wrong about that. For you the borrower, however, you need to remember that every dime you pay in interest is a dime more than you had to pay. Do everything in your power to only pay interest when there is no avoiding it, and to choose the option that brings less interest, and you’ll be shocked at how much

Still not convinced? Here is another good article about the VA Hybrid Loan Pros and Cons that may help you decide the best option for your situation.  Think of what you can do with all the saved money from a lower interest rate. Imagine taking the money that you would have been spending on a higher monthly payment with a fixed-rate mortgage and paying off your credit card debt. Credit cards can have interest rates in the 20% area – especially for delinquent amounts. Taking money saved with a lower mortgage payment and using it to pay off credit cards can save you a ton of money in both the short-run and the long-run.money you save.

 

 

 

Choosing the Right VA Hybrid ARM For You

Choosing the Right VA Hybrid ARM For You

 

This article assumes you already have foundational knowledge about the VA hybrid ARM. If you want to brush up on some of the terminology, check out our helpful video on YouTube, or if you want a fairly full understanding of the VA hybrid ARM program, check out our helpful guide here on LowVARates. Not all VA hybrid ARMs are created equal, and some ARMs will seem very tempting, but actually bring less total benefit some other seemingly less-appealing options. In this article we’ll go over many of the things you’ll need to consider when trying to decide which option to choose.

 

Choosing a VA Hybrid ARM

The first thing to consider is the relationship between the note rate you choose and the margin that the lender offers with it. Usually, the lender will offer a lower note rate in exchange for a higher margin at the end of the initial fixed period. In order to make the best decision, you will need to do some not-so-simple number crunching to determine which will save you more money. Is the low-margin, higher-note-rate combo more cost effective over the term of the loan, or is the high-margin, lower-note-rate combo going to keep more cash in your wallet? You’ll need to figure how much interest you’ll pay during the initial period with each of the note rates (usually 2.25% and 1.75%), then how much interest you’ll pay throughout the rest of the loan with each margin. For this calculation, you can ignore the index, as it will do it’s thing regardless of which note rate you choose. Like I said, this is a bit complicated, but let’s walk through an example together. You can make these calculations using one of many free mortgage calculators online.

 

Let’s say you are looking at a 3-1 hybrid ARM for a loan amount of $100,000. First, we need to calculate and compare how much interest you’ll pay with each note rate (so we are only considering the initial fixed three year period). For a 2.25% rate, you’ll pay $6,688.90 in interest in the first three years. For a 1.75% interest rate on the same loan, you will pay $5,186.96 in the first three years. So, a 1.75% saves you money in the first three years – anybody could tell you that. But on the 2.25% rate you were offered a 2% margin, and on the 1.75% rate you were offered a 2.25% margin. Remember that the margin (plus the index, which we are not worrying about) is what makes up your interest rate after the initial fixed period is over. So in this example, you’ll be paying the margin for the remaining 27 years of the loan. After the first 3 years of normal-amortizing payments, there will be $92,545 of principal remaining. With the 2% margin that you got with the higher note rate, over the remaining 27 years you will pay an additional $27,300.39 in interest. With the 2.25% margin that you got with the lower note rate, you will pay an additional $31,023.50 in interest.

 

So, if you chose the lower note rate (1.75%) with the higher margin, you will pay a total of $36,210.46 of interest on that $100,000 loan. If you chose the higher note rate (2.25%) with the higher margin, you will pay a total of $33,989.29 of interest. The higher note rate will have saved you roughly $2,700 over 30 years, making it the better choice in the long run. It’s important to note, that if this were on a 5-1 hybrid ARM, where the note rate is applied for the first 5 years instead of just the first 3, these numbers would be different, and it may even be that the lower note rate would be more advantageous even though it was paired with a higher margin. This is the second thing to consider – the relationship between the initial fixed period and the note rates and margins offered at each duration. The offered note rate and margin will usually change depending on the initial fixed rate, and those changes will affect the cost effectiveness of each option.

 

The last thing we’ll discuss here is the importance of remembering how interest is calculated. Interest is calculated by applying the rate to the remaining principal. What this means is that you are paying a larger dollar amount of interest at the beginning of the loan than you are at the end. This is because the same interest rate (let’s say 2.25%) is being applied to the remaining principal. At the beginning of the loan, you still have close to $100,000 of unpaid principal remaining, and the amount of interest is 2.25% of whatever the principal is. As you pay off more principal, the amount of interest you are charged gets smaller because 2.25% of any amount smaller than $100,000 is less than 2.25% of $100,000.

 

Good Timing for a VA ARM Loan?

Are you 40 or older and reasonably well off? You might be surprised at how well an adjustable rate mortgage (ARM) could work out for you at this stage of life. ARMs are only a small part of the market, but most people are surprised to find out that most of them don’t adjust for five or seven years, meaning this option can make a lot of sense if you don’t plan on being in your home long or for older refinancing homeowners with lots of equity.

Why Consider a VA ARM?

You might be asking “why should I even consider an ARM?” or “Is an ARM safe?” The biggest savings come if you pay off the loan within the five to seven years before the ARM adjusts–effectively turning it into a very short, very low-rate fixed mortgage. That’s attractive if, for example, you plan to move in the next several years or if you want to pay off a big mortgage before you retire.

A surprising number of veterans never really look into their Veterans Affairs (VA) loan guarantee. The VA home mortgage was established  for the purchase of homes, condominiums, co-ops, and manufactured homes. The VA guarantees a percentage of the loan, which helps you obtain a no-down payment mortgage at a competitive interest rate.

Some Advantages of Adjustable-rate Mortgages

  • Feature lower rates and payments early on in the loan term.
  • Allow borrowers to take advantage of falling rates without refinancing.
  • Help borrowers save and invest more money.
  • Offer a cheap way for borrowers who don’t plan on living in one place for very long to buy a house.
  • Because lenders can use the lower payment when qualifying borrowers, people can buy larger homes than they otherwise could buy.
  • Instead of having to pay a whole new set of closing costs and fees, ARM borrowers just sit back and watch the rates -and their monthly payments fall.
  • Someone who has a payment that’s $100 less with an ARM can save that money and earn more off it in a higher-yielding investment.

Are You Eligible for a VA Home Loan?

You may qualify for a guaranteed VA loan if you are:

  • A veteran (including Reserve and National Guard members who were called to active duty)
  • An active duty service member
  • A current Reserve and Guard member (usually after six years of reserve service)
  • Certain surviving spouses
  • A commissioned Officer of the Public Health Service or National Oceanic and Atmospheric Administration, once discharged.

Generally, in order to receive VA benefits and services the Veteran/service member’s character of discharge or service must be under honorable conditions. However, individuals receiving undesirable, bad conduct, and other types of dishonorable discharges may qualify for VA benefits depending on a determination made by VA.

Your Next Steps

To apply for a VA home mortgage loan, you will need a valid Certificate of Eligibility (COE). There are several ways to obtain your COE:

  • You may be able to obtain a COE online through eBenefits at http://www.ebenefits.va.gov.
  • If you are unable to obtain your COE through eBenefits, check with your lender. In most cases, your lender will be able to obtain a COE for you using the Automated Certificate of Eligibility (ACE) program.
  • You can download VA Form 26-1880, “Request for A Certificate of Eligibility” at http://www.va.gov/vaforms/. Complete it and mail it with proof of military service to the VA Eligibility Center.

For more information on this program, visit http://www.benefits.va.gov/homeloans/.

Helping Veterans Understand the VA Loan

Many first-time veteran home buyers find themselves at a loss as they negotiate the loan process. I’ve created a comprehensive, yet (hopefully) easy to follow overview of the major terms and concepts you may encounter.

VA LOAN TYPES

There are two basic loan types –

VA Fixed Rate Mortgages

VA Fixed Rate mortgages are fixed for the entire term of the loan and are the most secure loans. The term can be anywhere from 10-50 years depending on the loan program, but 95% of the time are fixed for a 30-year term. These are best for veterans on fixed incomes and for veterans who plan on being in a property for either an extended or indeterminate amount of time and have no plans to refinance.

 VA Adjustable Rate Mortgages or VA HYBRID ARM’s

VA Fixed Rate mortgages are fixed for the entire term of the loan and are the most secure loans. The term can be anywhere from 10-50 years depending on the loan program, but 95% of the time are fixed for a 30-year term. These are best for veterans on fixed incomes and for veterans who plan on being in a property for either an extended or indeterminate amount of time and have no plans to refinance.

Since most veterans know that they will either sell or refinance their home well before the end of the 30 years, many individuals choose adjustable rate mortgages. VA HYBRID ARMs can come in a variety of terms, depending on the loan product but are for the most part also based on 30-year terms. However, VA HYBRID ARMs have an introductory fixed rate period ranging from 3-5 years at a lower rate than those of a 30 year fixed loan. In exchange for the benefit of a lower interest rate, once the fixed rate period ends the loan will adjust to the current market conditions of that time.

It is a common misconception that when the Fixed rate period is up the loan rate will automatically increase. The loan will adjust according to the rate of the 1 year Constant Maturity Treasury Index (1yr CMT) + a fixed margin (usually 1.75-2.25%) which is determined at the inception of the loan. Let’s you had a 5 year VA HYBRID ARM at 7.5% with a margin of 2%. When the Fixed rate period is up after 5 years, if the 1yr CMT was at 4% then the interest rate on the loan would actually drop to 6%.  Conversely, if the 1yr CMT at that time was higher, say at 6%, the rate would go up to 8%. Regardless what the 1yr CMT is at when the VA Fixed Rate ends, all VA HYBRID ARM’s have built-in rate adjustment caps that limit how much the rate can change each month, year, and over the remaining life of the loan.

VA HYBRID ARM’s and VA Fixed Rate loans refer only to the interest rate on a loan. The terms Amortization and Interest Only refer to the payment schedule based on this rate. Both VA HYBRID ARMs and VA Fixed Rate Loans are amortizing loans, although I will cover interest only loans as well to be thorough.

AMORTIZATION TYPES

Amortization refers to (with regard to mortgages) the repayment of the balance of the principle amount borrowed over a specific term. As mentioned earlier, loans have many terms and can be amortized over any of them. The key to understanding amortization is that it refers to a loan that is being repaid over the term of the loan. Banks “front end load” their loans in order to maximize their interest return. At the start of the loan, the bank calculates how much interest the rate they have locked you at will generate for them across the entire amount of the loan. When they receive your monthly payment, instead of equally distributing the payment to the interest due and toward reducing your balance, banks load the majority of the interest owed over the life of the loan into the first 10 years. Within the first year of a 30 year loan, the vast majority of the payment is going to pay the interest on the loan with very little actually going to pay down your principle balance. In the last year of the loan then, the majority of the payment will be going to pay down the balance, having paid the bulk of the interest calculated over 30 years in the first 10.

Interest Only loans are simply loans that do not amortize for a fixed period of time. On a 30 year interest only loan with a 10-year interest-only period, you will only be required to pay the interest due on the loan for the first 10 years. You will make no contribution toward principle. The interest you pay each month for the first 10 years is simple interest calculated by multiplying the balance (e.g. $100,000) times the interest rate (e.g. 6%) divided by the 12 months of the year. ($100,000 x .06 = $6000 , $6000 / 12 = $500+TI per month monthly payment for the first 10 years) By contrast, a $100,000 30 yr VA Fixed Rate amortized mortgage at 6% would be $599.55. Sure you might not be paying your balance with an interest only loan but consider the following – you could take the $99.55 per month you were saving by not choosing an amortizing loan and:

  1. Put it toward paying down higher interest rate credit card debt
  2. Put it into an 6 month CD that would roll over every six months with compound interest taking advantage of rates as they rise. By doing this, you would essentially be “hedging” the market against rising rates.

Putting money toward your home is beneficial only if it is contributing to a lower payment. Many veterans believe the interest they pay over the life of the loan reduces as their balance does over time. This is not true. It only appears that way. Because of the way loans are structured, the amount of interest you pay over the life of the loan is based off the original NOTE amount or principle balance. This interest you actually pay is the “front-end loaded” interest calculated on this original amount. So this means the only way you will lower your payment on most mortgages is by refinancing and paying off a portion of the remaining balance owed in a lump sum, thereby reducing your future payments on the new loan with a smaller balance and NOTE amount. By putting your savings away on an interest only loan as described in the 6 month CD example, you could actually pay down your balance faster than an amortizing loan of equal rate. Whenever you refinance, simply take the amount saved by making the I/O payment + the interest you have earned on in and use it to pay down your remaining balance. Putting money toward the equity in your home isn’t really safe anyway. Imagine if you took the $99.55 per month saved and put it toward your balance each month. If the property depreciates, that money is gone. If you had been saving it in a risk-free, interest-bearing investment, you not only have the money you would have lost but all of the interest earned as well.

CLOSING COSTS

The amount of VA loan closing costs you pay will be directly proportional to what rate you decide on. The general rule is: The higher the VA interest rate, the more projected interest the bank will make on you, the more flexibility the bank has to cover and or waive closing costs. You can choose to lock into rates even below prime if you choose to, but the bank will ask you to pony up with a commensurate amount of prepaid interest to “buy-down” your interest rate. It follows then that these fees are sometimes called “discount points”.

CONCLUSION

I hope this has been a helpful overview of the loan process and some of the key terms you may encounter. Feel free to check out some of my other posts (Linked Below) on specific VA loan products including the VA Hybrid ARM.

http://www.lowvarates.com/va-loan-blog/how-about-the-va-hybrid-arm/

http://www.lowvarates.com/va-loan-blog/veterans-need-to-take-advantage-of-the-va-hybrid-loan/

http://vimeo.com/10101207

Feel free to contact me any time with questions:

James Shergill

888-657-2848 ext 252 Toll Free Office Line

650-605-3638 Mobile

How about the VA Hybrid ARM?

Most veterans I speak with are wary when it comes to the subject of adjustable rate mortgages, or ARMS.  The perception is that at best they are uncertain, and at worst, they are disastrous.  Many veterans I work with are on fixed incomes and can’t afford any more uncertainty in their lives, particularly when they are already battling to keep their credit cards at bay.  Other veterans tell me that their goal is to simply pay off their home as quickly as possible, and that an ARM could potentially undermine this effort.   Its hard to argue with this logic.  For many, ARMs equal uncertainty.  And having worked with many homeowners over the years, I would venture to say that veterans crave security more than most; a fact made even more apparent to me during a VA mortgage seminar my office held for some area veterans.

Click here to get started with you VA Loan today

I began the meeting with a simple question: What do you know about adjustable rate mortgages?  To my surprise, the veterans responded immediately.

“They lure you in with low rates, and as soon as you sign the paperwork your loan starts to adjust out of control.” one veteran warned.

“I heard that your rate is fixed for a short time, but after that the bank can raise your rate whenever they want to.” another interjected.

“Adjustable Rate Mortgages are the reason that we are in this banking crisis to begin with.” noted another.

“If you miss a payment the bank has the right to take your first born child.” cautioned a fourth.

Okay, the last one was made up, but you get the idea.  I suppose what I found most intriguing about the question was that there was no shortage of responses and they were almost universally negative.  Being that I was there to discuss the new VA Hybrid ARM product, I felt the best, most relatable approach would be to describe a recent experience with a fellow veteran who had opted for this product.

I recently took an application for a veteran named Colonel Mustard.  I’ve changed his last name of course, but I can assure you all that this man was, in fact, a “full bird” colonel.  I mention this because right from the get-go he let me know how the call was going to play out:  He told me that he would only provide enough information to send him a loan quote for a VA 30 year fixed rate mortgage.  Once I did he would compare my offer against several others, and if I was the best, he would call me.   I took his application, prepared a Good Faith Estimate and sent it to him.  As always, I explained to him that rates were date sensitive and were subject to change due to market conditions.

Although Colonel Mustard acknowledged this, he must have forgotten it immediately because two weeks later I received a phone call from him followed by a signed copy of the estimate.

“James,” he said, “I’ve weighed the options and compared your quote to all the other ones I’ve received.  Yours was the best.  I’m ready to lock in my rate today.”

“I appreciate your business Colonel, but I’m unable to lock in the rate that I quoted you.”  I apologized.   “You might remember sir, that I told you the rate would only be good for 24 hrs.  The market ultimately determines rate movement.  Unfortunately, the market has pushed the rates higher since we last spoke.  However, you might be interested in the VA Hybrid ARM as an alternative.  In fact, given your desires to pay your home off faster I think this would be a better fit.”

“I told you I’m not interested in ARM’s.” he said flatly, and proceeded to list the same objections raised earlier.

“While I understand your objections sir, not all ARM’s are created equal.  The Hybrid Arm is a VA insured loan.  It is entirely different than those you are describing.  Consider the following:

  • The VA Hybrid loan does NOT adjust to whatever the bank wants  to set it at.  It moves in accordance with the rates of the US 1 yr Constant Maturity Treasury index.  Below is a graph reflecting the performance of the treasury index over the last 10 yrs.  You will see that the rate never moved higher than 6.33% .  The average rate over this 10 year period was around 3%.   In all this time, the index has never moved more than 1% in a year, and never in consecutive years.
  • You will enjoy a fixed rate of 3.75% for 60 months saving twice as much as the fixed rate option.
  • With the additional savings you can have all of your non-mortgage debt (credit cards, etc) paid off much faster, freeing up additional $ in monthly expenses.  These additional dollars can be leveraged into even greater principal reduction.
  • Your rate can never adjust more than 1% a year, regardless of what the index rate is.
  • Your rate does not automatically adjust up, it can just as easily adjust downward depending on the market
  • If your rate ever does adjust the loan will reset the payment based on the remaining balance.  By contrast, the payment on a 30 fixed rate loan is based off the loan amount at the time the refinance closes and will never change.  If you were to make the same payment on the VA Hybrid ARM as you would have made on the 30 year fixed option, the difference would be deducted from the balance each month.  By doing this, you could possibly have a lower payment, regardless of what the rate might adjust to.  (see VA 30yr Fixed Rate vs. VA Hybrid ARM comparison below.)
  • You will be able to obtain this rate for significantly less fees than the fixed rate

ratecharts15

Historical Chart

1 Year Constant Maturity Treasury Rate
Month 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Jan 4.51% 6.12% 4.81% 2.16% 1.36% 1.24% 2.86% 4.45% 5.06% 2.71% 0.44%
Feb 4.70% 6.22% 4.68% 2.23% 1.30% 1.24% 3.03% 4.68% 5.05% 2.05% 0.62%
Mar 4.78% 6.22% 4.30% 2.57% 1.24% 1.19% 3.30% 4.77% 4.92% 1.54% 0.64%
Apr 4.69% 6.15% 3.98% 2.48% 1.27% 1.43% 3.32% 4.90% 4.93% 1.74% 0.55%
May 4.85% 6.33% 3.78% 2.35% 1.18% 1.78% 3.33% 5.00% 4.91% 2.06% 0.50%
Jun 5.10% 6.17% 3.58% 2.20% 1.01% 2.12% 3.36% 5.16% 4.96% 2.42%
Jul 5.03% 6.08% 3.62% 1.96% 1.12% 2.10% 3.64% 5.22% 4.96% 2.28%
Aug 5.20% 6.18% 3.47% 1.76% 1.31% 2.02% 3.87% 5.08% 4.47% 2.18%
Sep 5.25% 6.13% 2.82% 1.72% 1.24% 2.12% 3.85% 4.97% 4.14% 1.91%
Oct 5.43% 6.01% 2.33% 1.65% 1.25% 2.23% 4.18% 5.01% 4.10% 1.42%
Nov 5.55% 6.09% 2.18% 1.49% 1.34% 2.50% 4.33% 5.01% 3.50% 1.07%
Dec 5.84% 5.60% 2.22% 1.45% 1.31% 2.67% 4.35% 4.94% 3.26% 0.49%

Source: Federal Reserve Board

VA HYBRID ARM vs. FIXED RATE OPTION

$300,000 VA 30yr Fixed Rate Loan at 4.75%

  • Monthly Mortgage Payment =                                                                                          $1564.94
  • Loan Balance after 5 years =                                                                                              $274,494.89
  • Mortgage Payment after 5 years =                                                                                  $1564.94  (payment never changes on a 30yr fixed loan)
  • Loan Balance after 6 years =                                                                                              $268,627.47

$300,000 VA Hybrid Loan at 3.75% making the 30 year fixed payment

  • Monthly Mortgage Payment =                                                                                           $1389.35 OR $175.59
  • Loan Balance after 5 years =                                                                                               $258,663.72 OR $15,831.17 lower than 30yr Option
  • “Worst Case” payment after first adjustment if rate adjusts to 4.75% =            $1482.06 OR $82.88 lower than 30 yr option at the same rate

After covering these options in detail, there was a long pause on the phone.  Finally, Colonel Mustard spoke, “So you’re telling me that for the next 5 years, I’m guaranteed to save $175 more per month that the other option, which isn’t even available?”

“Yes.” I replied.

“Is there a penalty for paying extra toward my principal balance?” he asked.

“Like all VA loans, there are no prepayment penalties or balloon payments on this product.  You are free to put as much as you like toward the balance as you like.  The Fair and Accurate Credit Transactions Act stipulates that any amount that you add to your payment above the required amount must be deducted from the principal balance.  Is that what you are planning to do?”

“Well yes, but on the other hand I’d rather use the money at first to pay off some credit cards and a pool loan. Would that put me at a disadvantage with the loan?” he asked.

“Not necessarily.  In fact doing so will likely be even more beneficial to you.  Most people tend to see their mortgage payments as separate from their finances.  The idea is to prioritize paying off your debt in order of the debts with the highest rates first, as opposed to the highest balances first.  How much non mortgage debt do you have that is at a higher rate than your VA mortgage?” I asked.

“Let’s call it around $15,000, for which I pay $400 a month.”

“Even better.  If you were to apply the monthly savings of $175 per month to this debt you would likely have it all payed off in just under 3 years.  By this time, you will have freed up $575 a month which you will enjoy for at least 2 years, guaranteed.  Remember, its all about the lowest monthly expenses.  If the VA Hybrid ARM lets you achieve this faster than the VA 30 year fixed loan then I think the answer is clear.”

“Okay.  One last question.  What if things change and I want to fix the interest rate?”  he asked.

“Low VA Rates offers a no-cost refinance for any return customer veteran wishing to refinance out of the Hybrid ARM.  Again, there would be no prepayment penalties associated with this.  Like the VA 30 year fixed option, you would still be eligible to defer two months payments and receive an escrow refund.”

An even longer silence.  But after what seemed like 2 minutes, Colonel Mustard spoke:

“Send me the paperwork.  This sounds good to me.  I appreciate your help.” he said.

“Happy to help, sir.  I will send that to you right away.  I would be happy to lock you in as soon as you send the signed disclosures back to me.”

“Sure thing.  I should have it to you in the next couple of weeks.” He said dryly.

“Uh…sir?”

“Just kidding , James.” he laughed.

“Right.  Good one, sir.  Thanks a lot.”

Flash forward back to the seminar.  I had just finished recounting the Colonel Mustard story and the room was quiet.  I could tell that many of the veterans were deep in thought.  I decided to break the ice.  “Listen folks, what you should take away from this is that, like loans,  not all ARMS are created equal.  Colonel Mustard happened to discover that the VA Hybrid ARM was the program that best fit his goals.  For those of you with stable income and a decent amount of debt, this might be a dream come true.  For others, a traditional fixed rate loan will be more beneficial.  At the end of the day it depends on the individual’s financial circumstances and goals.  But ask yourselves, if there are 30 year fixed conventional mortgages, yet you all still favor the VA 30 year fixed mortgage, doesn’t the VA Hybrid ARM deserve a second look apart from conventional ARMS?”

Oddly, this didn’t seem to break the silence.  However, just when I was begining to squirm, the questions started flying.  By the end of the seminar, four of the veterans had asked me to price out refinance options for them on the Hybrid ARM.

We all know that most active duty military personell live transient lives, being forced to relocate and move at every transfer.  Similarly, veterans, as well as the rest of the private sector are finding more and more that they are living in a transient society.   Americans move on average every 5 years (increasingly out of state) in search of work.  Furthermore, the vast majority of veteran homeowners simply do not stay in their homes for a 30 year term.  If we can accept this as true, then I believe that the VA Hybrid ARM deserves to be considered whenever a veteran is looking to refinance.  It won’t work for everyone, but it will work best for many.

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