The VA Streamline Loan is one of the most popular refinances right now due to its ease and the benefits that can be received through it. Not only can the veteran basically avoid jumping through all of the hoops that come along with obtaining a loan, but here are just some of the benefits that a streamline offers: no appraisal, an optional down payment, lenient credit requirements, no income verification, the possibility of deferring two months payments, and the possibility of getting an escrow refund of the money that is in the escrow account when the loan is paid off.
Now these benefits do depend on what lender you work with. The VA sets all of the rules in place, but since it is the lender that is lending the money and the VA is only guaranteeing the loan, the lender can determine if they wish an appraisal or a certain credit score is required.
The VA Hybrid loan is becoming more and more widely used for VA refinances now. Now hearing the word hybrid, you may think of a car. It’s actually the same idea. Just as the car combines gas and electric, the hybrid loan combines an adjustable rate mortgage (ARM) and a fixed rate mortgage. The VA took the best of each loan and made this one! Most veterans lifestyles requires them to move frequently and are not able to remain in their home for the duration of their entire 30 year fixed rate mortgage, so that type of loan was not working out the best for them.
Hybrid loans are a combination of a fixed rate and an adjustable rate mortgage. The introductory rate period is fixed, generally for a period of 3, 5, 7, or 10 years of the loan, with the lowest interest rate usually coming with the 3 or 5-year option. After the introductory period is over the adjustable rate begins. Studies show that many homeowners only stay in their homes for 7 to 10 years, so a hybrid loan allows these buyers to take advantage of the very low rates in those first few years of their mortgages. After the adjustable rate begins, the rate can only adjust every 12 months and it can only adjust up to a max of 1% up or down per year, with a lifetime cap of 5%.
There are many benefits to this combination loan. Here are the main three:
1. LOWER INTEREST RATE DURING FIXED PERIOD
One of the main reasons people choose a hybrid loan is for the lower interest rates going into the loan. Hybrid loans typically have an initial start rate of 1-2% lower than that of a 30 year fixed rate. This can lead to savings of $100-200 monthly! The 3 and 5-year options tend to have the lowest rates. These rates are guaranteed fixed for the set option you choose (3, 5, 7, or 10), which is a considerable amount of time.
2. ADJUSTABLE RATES CAN DECREASE IN A DECLINING INTEREST RATE MARKET
When the borrower’s introductory rate is over, and the rates are lower than what your fixed rate was at then your rate gets even better during that time. This would reduce the payment even more and can save the borrower even more money!
3. FLEXIBILITY TO END THE LOAN
This may be one of the largest benefits of the loan. The borrower can enjoy all of the benefits of this loan but avoid a possible rising interest rate. As mentioned before, most veterans and regular homeowners are not in their home for a full 30-year term. Most choose to take out this type of loan and terminate it by refinancing or selling (if they are moving) at the end of the fixed term. This is one of the main reasons they choose a hybrid over any other type of loan.
Of course, there are a few drawbacks, but there are to every loan. The rate could jump up and then the borrower would be stuck paying a higher rate, but also as stated before there is an option to refinance and terminate the loan.
VA Hybrid loans offer savings and safety that many veterans are taking advantage of already.