VA 5/1 Hybrid Streamline Loan

VA 5/1 Hybrid Streamline Loan (IRRRL)

A VA 5/1 Hybrid Adjustable-Rate Mortgage (ARM) combines an initial fixed-rate period with an adjustable interest rate later in the loan term. When available as part of a qualifying VA Interest Rate Reduction Refinance Loan (IRRRL), it may provide another refinancing option for eligible borrowers with an existing VA-backed home loan.

How a VA 5/1 Hybrid ARM Works

With a 5/1 Hybrid ARM, the interest rate is fixed for the first five years of the loan. After the initial five-year period, the interest rate may adjust once each year according to the applicable loan index, margin, adjustment caps, and other terms contained in the loan documents.

• Fixed interest rate during the initial five-year period
• Annual interest-rate adjustments after the fixed period
• The rate may increase, decrease, or remain unchanged after the initial fixed period
• No monthly private mortgage insurance (PMI) on a VA-backed loan

Interest-Rate Adjustment Limits

VA adjustable-rate mortgages are subject to limits on how much the interest rate may change. Under applicable VA requirements, annual adjustments are limited and the loan is also subject to a lifetime adjustment cap.

• The interest rate generally may not change by more than 1 percentage point at a single annual adjustment
• The interest rate is generally limited to no more than 5 percentage points above the initial contract interest rate over the life of the loan
• The actual rate after an adjustment depends on the applicable index, margin, caps, and terms contained in your loan documents

Because an adjustable-rate mortgage can result in a higher payment after the fixed-rate period ends, borrowers should review the ARM disclosures and understand the maximum potential payment changes before choosing this type of loan.

VA Streamline Refinance (IRRRL)

The VA Interest Rate Reduction Refinance Loan, commonly called a VA Streamline or IRRRL, is available to eligible borrowers who are refinancing an existing VA-backed home loan.

• Must refinance an existing VA-backed home loan
• No VA appraisal is generally required
• VA generally does not require a full credit-underwriting package for an IRRRL, although lender requirements and certain exceptions may apply
• Allowable closing costs may generally be included in the new loan, subject to VA requirements
• The borrower generally certifies that they previously occupied the property
• An IRRRL does not permit the borrower to receive cash from the loan proceeds

IRRRL Benefit Requirements

A VA IRRRL must satisfy applicable VA refinance requirements, including requirements intended to provide the borrower with a financial benefit from the refinance.

Whether a particular refinance qualifies depends on factors such as the existing loan, the new loan terms, interest rate, payment, fees, closing costs, seasoning requirements, recoupment requirements, and whether the transaction otherwise meets VA guidelines.

What If You No Longer Live in the Property?

The occupancy requirement for an IRRRL differs from the occupancy requirement for many other VA loans. For an IRRRL, an eligible borrower may generally certify that they previously occupied the property as their home.

This means that in some circumstances an existing VA-backed loan on a property that is no longer the borrower's current residence may still qualify for an IRRRL, subject to VA and lender requirements.

VA Energy Efficient Mortgage (EEM)

An eligible VA Energy Efficient Mortgage option may allow certain energy-efficiency improvements to be included with a VA purchase loan or IRRRL. An EEM is not a separate VA loan; it is used in conjunction with an eligible VA loan.

VA guidance provides specific requirements for energy-efficiency improvements and how their costs are evaluated. Improvements of up to $6,000 may be handled under specific VA EEM guidelines, and larger amounts may require additional lender analysis and qualification.

• Certain insulation improvements
• Weather stripping and caulking
• Certain heating and cooling efficiency improvements
• Heat pumps
• Certain solar heating and cooling systems
• Other qualifying energy-efficiency improvements

Potential Advantages of a 5/1 VA Hybrid ARM

• Five Years of Rate Stability: The interest rate remains fixed during the initial five-year period.
• Adjustment Limits: After the fixed period, annual and lifetime caps limit how much the interest rate may change.
• Potential for Future Rate Decreases: Depending on the applicable index and loan terms, the interest rate could decrease after the fixed period as well as increase.
• VA Loan Benefits: VA-backed loans do not require monthly private mortgage insurance.
• Refinance Flexibility: A qualifying 5/1 Hybrid ARM may be available in connection with an IRRRL, subject to VA requirements and lender program availability.

Important Considerations

A 5/1 Hybrid ARM is not appropriate for every borrower. After the initial five-year fixed period, both the interest rate and monthly principal-and-interest payment may increase.

Before choosing an adjustable-rate mortgage, review the loan's index, margin, adjustment dates, annual adjustment limits, lifetime cap, and maximum potential payment. Your lender will provide required ARM disclosures describing these terms.

Is a VA 5/1 Hybrid IRRRL Right for You?

The appropriate loan structure depends on your existing VA loan, current interest rate, expected time in the property, financial goals, available loan terms, and your comfort with the possibility of future rate and payment adjustments.

VA Help Center can explain the available VA refinance options and help you compare a fixed-rate VA loan with a 5/1 Hybrid ARM when the program is available.

Have questions about your VA refinance options?

Explore Your Refinance Options

Or call (801) 871-3739

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VA Help Center LLC is not affiliated with or endorsed by the U.S. Department of Veterans Affairs or any government agency.
Loan programs, rates, terms, and eligibility are subject to applicable VA requirements and lender approval.

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Questions? Contact VA Help Center to learn how the VA 5/1 Hybrid Streamline Loan can fit your home financing goals.