An ARM margin is the fixed part of an adjustable-rate mortgage that is added to the floating indexed interest rate. The Department of Veterans Affairs (VA) supports loans that are available to active-duty members of the military, veterans, and eligible surviving spouses. VA hybrid home loans offer fixed-rate periods of three, five, seven, and 10 years. The rate limit for loans with a fixed-rate period of less than five years is 1 percentage point up or down for the initial adjustment, and the lifetime adjustment limit is 5 percentage points.
For hybrid mortgage loans of five years or more, the initial adjustment limit is 2 percentage points up or down, and the lifetime adjustment limit is 6 percentage points. For all VA hybrid mortgage loans, the subsequent adjustment limit is 2 percentage points. A hybrid mortgage is a mortgage loan with a fixed interest rate for a specified period of time, after which the rate is adjusted periodically for the remaining term of the loan. A hybrid loan combines the best features of fixed and adjustable lending into an attractive lending program.
A hybrid loan differs from an interest-only loan in that more money is earmarked at the beginning of the loan. If you don't plan to stay in the house for the entire fixed-rate period, a hybrid mortgage could be a great option for buying a home at a low interest rate to maximize your savings. This lower rate usually means a lower monthly payment, making hybrid lending more affordable for the first few years. If you're getting ready to pay for college tuition, pay for a wedding, or finance another major life event, you may not have the cash you need if your hybrid mortgage payment increases more than expected after a rate adjustment.
Hybrid ARMs have a fixed interest rate for a set period of years, followed by an extended period during which rates are adjustable. If you expect a raise or salary increase before the fixed-rate period ends, a hybrid mortgage could provide you with a way to get a mortgage loan now, knowing that you'll be in a good position to make payments after the fixed-rate period ends. With a three-year hybrid ARM loan, the initial adjustment limit is 1 percentage point and the lifetime adjustment limit is 5 percentage points. There are four hybrid mortgage products backed by the Federal Housing Administration (FHA) with fixed rate periods of three, five, seven, or 10 years.
Some financial experts believe that fixed rates and variable rates work well together when combined in the hybrid rate. Due to the payment limit, you may find that you're paying more for the hybrid mortgage than for the original loan amount, which could negate any savings you received during the fixed-rate period. A hybrid loan is a mix of two types of loans, specifically a fixed-rate loan and an adjustable-rate mortgage. This may not be bad for everyone, but if you're looking for a simple loan plan, a hybrid loan may not be for you.
With so many options, it's important to review the rates and limits of each type of conventional hybrid mortgage you're considering.