Many home owners are financially strapped right now. The economic down turn has caught most of us in some sort of financial hardship. The question of whether the VA Hybrid Loan is a good option for saving money is a good one.
Many Veterans are getting mailers or advertisements offer VA streamline loans with rates of 3.0% apr or lower. These low rates are offered on the 3yr or 5yr VA Hybrid loan.
Many Veterans are hesitant to look at this option for fear of what might happen in the future. This is the VA’s version of an adjustable rate mortgage so the natural fear is that the loan will adjust in the future. Thinking about what the future holds is a good idea, but sometimes the present financial problems may outweigh future financial costs. Current monthly savings might be more important that some future financial risk. It is a simple risk vs. reward question that Veterans must ask themselves.
Basically, if you are in a financial bind right now and need to save as much money as possible then the VA hybrid loan is a great option. Also, if you know you will be moving in the next 3-7 years then this loan makes a lot of sense.
Understanding how the VA Hybrid works is important when deciding if it is the right loan for you. Hybrid means just that, a mixture. The VA took the best of the fixed rate mortgages and the best of the adjustable rate mortgages (yes that’s right, there are some very good components of adjustable rate mortgages.)
The VA has tried to give as many advantages of the adjustable mortgage to Veterans while limiting the risks. Some of the ways that the VA Hybrid loan limits risk for Veterans include:
- Interest rate is fixed and guaranteed for the first 3 or 5 years
- After the initial fixed period, the rate can only adjust every 12 months (remember the rate can go up or down, many Veterans have enjoyed their rates adjusting down the last few years)
- The index (component that makes the loan adjust up or down) is a very stable slow moving index (1yr CMT)
Remember, if you have a VA loan you are always eligible for the VA streamline loan. Some Veterans analyze their financial situation and determine that they absolutely do need to save money right now but know that they are going to keep their current home long term. The VA Hybrid loan may give the immediate financial relief that is need and then in 3-7 years you can always streamline back into a fixed rate if you get nervous about the adjustable feature.
As always, there is no absolute right or wrong answer when analyzing a loan. The VA Hybrid loan might be the best thing in the world for one Veteran and the worst thing for another. If you are considering a refinance using a VA Hybrid loan make sure you speak with a loan officer who specializes in VA loan that can help you analyze the pros and cons of all of your loan options.