This means that they have a fixed rate for several years before making the adjustment. Usually, only once a year. This means that rates remain fixed for 5 years before being adjusted once a year based on an index every year thereafter. 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. The VA offers several different types of mortgages to eligible veterans and members of the military on active duty. One of these options is known as the VA's adjustable rate hybrid mortgage (ARM).
This hybrid program is a VA-specific program and is not available to non-military homeowners. While there are programs available for other borrowers that act in a similar way to the VA's hybrid ARM, there are some differences. These differences make the VA option more secure and stable than other similar programs. Before we discuss the specific differences, let's first review what exactly an ARM is.
The VA hybrid ARM is a 30-year loan. Your interest rate will remain unchanged for the first 5 years, after which it will begin to adjust once a year, based on the movements of the Treasury Index with constant maturity (CMT). This is an index with a very stable history of fluctuations. Some traditional ARMs are also quite secure, but the VA hybrid ARM is the cream of the crop when it comes to adjustable rates.
For borrowers looking to sell a property within the fixed-rate period, these advantages can make hybrid VA loans an excellent option. Some of these guidelines can be found in other programs, but not all of them, making the hybrid what it is. The index used by the adjustable VA hybrid to calculate the rate each year is known as the One-Year Treasury with Constant Maturity (CMT). The VA hybrid loan has some specific guidelines to ensure that it remains one of the safest ARMs on the market.
The interest rate on a VA hybrid starts out low and remains fixed for three, five, or seven years, depending on the option you choose. These limits vary from program to program and from lender to lender, and are very important to consider when considering a VA hybrid ARM. With a hybrid VA loan, you can access the low introductory rates of an ARM with the initial stability of a fixed-rate loan. Hybrid loans, on the other hand, may offer a slightly lower initial rate compared to a fixed one before becoming an ARM.
Consequently, military service members and veterans considering applying for a VA hybrid loan must first confirm that their lender offers this product. Before explaining hybrid loans, borrowers must first understand how fixed-rate and adjustable-rate mortgages work. Today, the ARM program has gone from a six-month or one-year adjustable rate loan to the hybrid model.