VA Hybrid Program

Why choose a VA Hybrid loan over a 30-year-fixed?

Monthly Savings
The VA Hybrid loan offers veterans some of the lowest rates available in the market, providing substantial savings and more money in your pocket each month.

Ability to Pay Off Other Debts
With a lower interest rate during the initial fixed period, you have the opportunity to pay down other financial obligations. This can free up additional funds, making life more manageable or helping you pay off your mortgage more quickly.

Opportunity to Put More Toward Principal
The lower introductory rate frees up extra cash that would otherwise be spent on interest with a fixed-rate loan. By applying these additional funds to your mortgage principal, you can significantly reduce the number of years required to pay off your home, thanks to the compounding effect.

Predictable Planning for the Future
Depending on the program you select, whether it’s a 3/1 or 5/1 Hybrid, your rate is fixed for the initial three or five years, respectively. This predictability allows you to plan for the first rate adjustment. After the fixed period, the rate can only increase or decrease by a maximum of 1% per year, providing stability and minimizing financial surprises. The rate is capped at 5% up or down from the original starting rate.

Faster Recoup Period
Veterans benefit from these lower introductory interest rates without the additional fees that traditional homeowners often pay. This advantage makes the VA Hybrid loan a cost-effective option, allowing you to enjoy the savings sooner.

Program Flexibility
Once the VA Hybrid loan reaches its adjustment period, the rate may increase, decrease, or remain the same, depending on the 10-year Treasury bill and index rates. Many VA Hybrid homeowners have experienced rate decreases in past years, leading some to stay with the Hybrid program even after the adjustment period, rather than switching to a 30-year fixed loan.

3/1 VA Hybrid Loan

This program is fixed for the initial three years, offering veterans the lowest interest rate available. Since most homeowners typically stay in their home for 3-5 years before making changes, such as selling or refinancing, the 3/1 Hybrid VA program is designed to maximize savings over the next five years. Many veterans use these savings to accelerate mortgage payoff or to clear existing debts, freeing up more money for future financial goals.

5/1 VA Hybrid Loan

Similar to the 3/1, the 5/1 Hybrid Loan is fixed for the first five years, with a slightly higher initial rate. Most homeowners stay in this program for 7-8 years, enjoying the benefits of lower interest rates while planning for future financial flexibility.

In a 3/1 or 5/1 VA Adjustable-Rate Mortgage (ARM), the “fixed period” refers to the initial number of years during which the interest rate remains fixed. After this period, the rate adjusts annually based on a specified index plus a margin. Here’s a breakdown:

• 3/1 VA ARM

  • Fixed Period: The interest rate is fixed for the first three years.
  • Adjustment Period: After the initial three years, the rate adjusts annually. The rate could increase, decrease, or remain the same, with adjustments capped to a maximum of 1% per year.
  • Max Rate Cap: The rate can increase or decrease by a maximum of 1% per adjustment period, with a lifetime cap of 5% above the initial rate.
    • First Max Adjustment Example: If the initial rate is 2.25%, the maximum rate after the first adjustment could be up to 3.25% or as low as 1.25%. Then repeats yearly with a cap adjustment no greater than 1 percent yearly and no higher then 7.25% over the life of the loan.

  5/1 VA ARM

  • Fixed Period: The interest rate is fixed for the first five years.
  • Adjustment Period: After the initial five years, the rate adjusts annually. The rate could increase, decrease, or remain the same, with adjustments capped to a maximum of 1% per year.
  • Max Rate Cap: The rate can increase or decrease by a maximum of 1% per adjustment period, with a lifetime cap of 5% above the initial rate.
    • First Max Adjustment Example: If the initial rate is 2.75%, the maximum rate after the first adjustment could be up to 3.75% or as low as 1.75%. Then repeats yearly with a cap adjustment no greater than 1 percent yearly and no higher then 7.75% over the life of the loan.

These caps are designed to safeguard borrowers from substantial increases in their monthly payments, ensuring a degree of predictability even after the initial fixed-rate period concludes. Homeowners will receive advance notice of any rate changes throughout the life of the loan, allowing them to make necessary adjustments or preparations before the new payment terms take effect.