In fact, it has the lowest initial interest rate of all VA home loans. A hybrid loan is so called because it works both as a fixed-rate and an adjustable-rate loan. A hybrid has a fixed rate for an initial period, as short as three years before becoming a one-year ARM. These initial periods are offered in terms of 3, 5, 7 and 10 years.
According to VA guidelines, with hybrid ARMs, the fixed-rate period must be at least three years. Lenders may offer longer periods than this, but they cannot offer shorter periods. Common hybrid branches include fixed-rate periods of 3, 5, 7, or 10 years. For borrowers looking to sell a property within the fixed-rate period, these advantages can make hybrid ARMs great options.
Hybrid loans, on the other hand, may offer a slightly lower initial rate compared to a fixed one before becoming an ARM. An adjustable-rate hybrid mortgage, or hybrid arm (also known as a fixed-period ARM), combines the features of a fixed-rate mortgage with an adjustable-rate mortgage. The borrower should carefully consider their time horizon when choosing a hybrid branch and recognize the risks associated with the reinstatement date or the expiration of the fixed interest rate period. This means that hybrid ARMs usually offer the initial benefits of an ARM with the stability of a fixed-rate mortgage.
Now, the VA offers a compromise product, the ARM hybrid, which includes features for both fixed-rate and ARM lending. However, the initial fixed-rate period of the hybrid ARM protects borrowers from that risk for a specified period of time. On the other hand, if an ARM offers a significantly lower rate than its hybrid counterpart, this lower rate may outweigh the increased risks of an ARM. If a pure ARM offers interest rates similar to those of a hybrid ARM, it probably doesn't make sense to select the ARM.
Adjustable-rate hybrid mortgages can be fixed at fixed rate intervals of three, five, seven or 10 years and the adjustable rate is activated on the reinstatement date. With a hybrid ARM, the index is established as a reference interest to which the margin is added and thus calculate the new rate that will be enacted once the reinstatement date has been reached. The time a person stays at home before moving is a big factor in deciding what hybrid ARM ratio they need. Today, the ARM program has gone from a six-month or one-year adjustable rate loan to the hybrid model.