VA LOAN TYPES

- VA Purchase Loans

- VA Refinance Loans

- Streamline VA Loan

VA LOAN PROGRAMS

- VA Fixed Rate

- VA Adjustable Rate

- VA Jumbo Loans

VETERAN FORMS

- Certificate of Eligibility

- DD-214 Request

VA GUIDELINES

- What is a VA Loan

- VA Loan Limits

- Closing Costs

- Debt Ratios

- VA Funding Fee

- VA Credit Issues

- VA Occupancy Laws

- Joint Loans

- VA Loan Checklist

VA CALCULATORS

- What Can I Afford?

- Borrowing Power

- VA Loan Payments

- Amortization Schedule

- Compare Mortgages

- Consolidation Savings

VA Adjustable Rate Mortgage

Things to Know About Adjustable Rate Loans

Are you interested in a VA guaranteed loan with an adjustable rate? What should you know before signing on the dotted line?

There are two types of adjustable rate mortgages available to veterans through the VA home loan program. One is called a hybrid ARM, the other is known as a traditional adjustable rate mortgage or ARM. A traditional adjustable rate mortgage guaranteed through the VA has features including an initial fixed interest rate for a limited time, plus a yearly adjustment to the interest rate after the initial rate expires. You should also know that yearly interest rate adjustments are limited to 1% per year and are limited to 5% over the lifetime of the loan.

Traditional VA ARM loans often have no down payment. The borrower also has the option of negotiating the initial interest rate with the lender. You also get limitations on how much you will pay in closing costs, which can be an advantage to first-time homebuyers. According the VA, there are no monthly mortgage insurance premiums to pay with a VA adjustable rate home loan. Another advantage is the right to pre-pay on your loan with no penalty. This reduces cost of your loan.

The second type of adjustable rate mortgage guaranteed by the Veterans Administration is the hybrid ARM VA mortgage. Hybrid ARMs have many of the same features as traditional VA ARM loans, but there are some important differences. Did you know the initial rate of a VA guaranteed hybrid ARM is at least three years instead of one? The initial rate may last as long as five years or more.

The first adjustment to the interest rate can be up to 2% for VA guaranteed loans with a fixed rate period is five years or more. For initial fixed rate periods of five years or less, the initial adjustment is limited to 1%. Hybrid ARM annual adjustments after the initial period are limited to 1% when the fixed rate period is less than 5 years. VA hybrid ARM adjustments are limited to 2% if the fixed rate period is five years or longer.

VA guaranteed home loans with hybrid adjustable rate mortgages have many of the same advantages as their traditional VA counterparts. Those advantages include the no down payment option and a no mortgage insurance option advertised by the Veterans Administration. There are also limitations on the buyer's closing costs. You also have the option to prepay your VA mortgage with no penalty just as with traditional adjustable rate VA home loans.

When examining the terms, you'll learn traditional VA ARMs and hybrid ARMs guaranteed by the VA also feature a 30-year payment plan, plus an appraisal. In the case of new homes, buyers are protected by either a one-year warranty or a 10 year protection plan.

If you're trying to decide between a traditional adjustable rate mortgage and hybrid ARM VA mortgage, examine the cost of your initial mortgage payments and compare them to what they may be after rate increases over the lifetime of the loan. Know what your higher payments could be so you can budget accordingly. Be an informed borrower so you can take full advantage of your VA ARM loan.

Don't be taken by surprise with the amount of your adjusted payments over time as the interest rate changes. Some don't plan ahead and wind up struggling to make their mortgage payments. With adjustable rate VA loans, preparation is the key to success. Ask your loan officer to help you calculate the amounts of your monthly mortgage payments over the lifetime of your loan, but understand that those calculations are projections only-the amount of your actual interest rate adjustments may vary over time.