The VA Mortgage for the Empty-Nester

 15-Yr Fixed or Hybrid ARM

Hybrid or Fixed

Not all mortgage options are appropriate for every situation. A veteran whose children have all grown up and moved out on their own has very different priorities and needs than a young veteran just after discharge. There is a lot of confusing information out there on what you should do with your mortgage and much of it is misleading. Our goal here in this article is to help you figure out what’s best for you and your future. We’ll cover the three options that are usually the best choices for you: sticking with what you have, getting a 15-year fixed, or getting a VA hybrid ARM.


You may be better off sticking with what you have


Chances are you’ve already built a lot of equity in your home over the years, and you may be 15 years into a 30-year fixed. If that’s the case, often the best way to save money is to ride the wave all the way in. Why? Because a much larger chunk of your monthly payment is paying down principal than it would if you were to refinance to a 15-year fixed or possibly even a Hybrid ARM, plus you have the assurance that your monthly payment is never going to increase beyond increases in taxes and insurance. This can be comforting if you’re on a fixed income. However, you should take a look at what interest rates you can qualify for on a 15-year fixed and a hybrid ARM, and make a loan officer do the hard work of comparing the total interest paid, starting monthly payment, and payoff date of all three of your options. If you can get a significantly lower interest rate on a Hybrid ARM (very likely right now) than you currently have, it may be worth the closing costs to get one.


The 15-Year Fixed


You may be asking, why not a 30-year fixed? A 30-year fixed is probably the worst thing you could do at this stage, because you’re going to get a higher interest rate, higher closing costs, and make it extremely unlikely that you’ll ever fully pay off your home. On a 15-year fixed, especially if you have a fair amount of equity in the home, you’ll definitely get a lower interest rate than you could refinancing to a 30-year fixed, and your monthly payment may very possibly get lower than what you’re currently paying even though you’re paying off more principal with each payment. Also, for those who just can’t stomach the risk of a hybrid ARM (though it’s much less than you might expect), the 15-year fixed provides a stable, predictable, and better option than the 30-year fixed. If you can afford it, the more you can pay each month above the minimum payment the better off you will be. You’ll be saving yourself a great deal in interest over the life of the loan.


The VA Hybrid ARM


ARMs have a bad reputation, but the VA hybrid ARM is likely to be one of the best options you can get no matter what stage of life you’re in. First of all, the starting interest rate you can get could be as little as half what you can get on a 30 or 15-year fixed, which not only drops your minimum payment significantly, but allows you to throw a lot more money on principal each month if you continue to pay the same each month as you pay now. We won’t go into too much detail on the hybrid ARM here, but know that hybrid ARMs can only adjust once per year, are only allowed to adjust by up to 1% each year, and cannot increase by more than 5% over the life of the loan. Since you can start your ARM at 2.25% right now (as of the writing of this article), that means your interest rate could never get higher than 7.25% and it would take at least 5 years after the initial fixed period (so 8-10 years into the loan) to get that high even in a worst-case scenario. Depending on how much equity you already have, you may very well be able to completely pay off your home before then anyway. If the Hybrid ARM is still more risk than you’re willing to take on, then the 15-year fixed is a good option as well.


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*Annual savings calculator based on 2015 monthly average savings extrapolated year-to-date.