The general public, particularly veterans, feel cautious when it comes to the term “arm loan”, and they have the right to be so. With the conventional arm loans, things can begin good, but can end very badly due to the ever high interest rates. Fortunately, the government stepped in with the VA hybrid loan, which was structured to be much safer than the conventional arm loans. With the veterans in mind, the government designed this loan with the living situations and welfare factored into its criteria. To decide whether this type of loan is the best option for you, it is best to look at its pros and cons.
List of Pros of VA Hybrid Loan
1. Low Interest Rates
One big advantage in using a VA hybrid loan is its low interest rates. They are very favorable, and its fixed rate portion is lower than the standard 30-year fixed rate. This means that you will have lower monthly payments and will be able to afford and save more! In fact, a lot of veterans have taken advantage on this option and saved a significant amount of money.
2. Option to Re-Finance
With a VA hybrid loan, you will have the option to do some re-financing after the end of your initial fixed rate period. This way, you can stay away from higher interest rates and the adjustable rate period through refinancing.
3. Flexibility
VA hybrid arm loans are very flexible, and it allows you as a qualifying veteran to decide whether you want to opt for a 3, 5, 7 or 10-year fixed rate period. By choosing the 3-year option, you will see your interest rates being at the lowest available.
4. Low Fluctuations and Caps
After your initial fixed rate period ends, interest rates may fluctuate up to a maximum of 1 percent a year max and 5 percent for the cap of the initial interest rate. This perk makes the VA hybrid loan much safer than the conventional arm loans.
List of Cons of VA Hybrid Loan
1. Dependence on Interest Rate Movements
If there is a sudden rise in interest rates after the loan’s introductory period, you could end up paying a considerable amount on interest rates over its term. On the other hand, if you have chosen a long fixed rate period with lower interest rates on the market, then you will end up stuck in a high fixed rate.
2. Need to Adjust Budgets
Although the VA hybrid loan’s adjustable rate mortgage is safer than conventional arm loans, it still means that you need to adjust your budgets for the change. For instance, if you were having some employment issues and unable to qualify for re-financing, then you might get stuck with a higher interest rate, forcing you to pay higher monthly payments.
By saving for the future and planning the right strategy, the VA hybrid loan can be a great option for serious considerations. But again, make sure you weigh down its pros and cons first to see whether it is the best solution for your needs or not. Better yet, you should consult a VA mortgage professional to help you make your decision.