A VA Hybrid Loan functions just like any other good hybrid: it combines the best of two different elements. The hybrid loan is the combination of a fixed-rate loan with a variable-rate loan, giving you the best of both worlds. But what makes a VA Hybrid Loan better than the average bank loan is the fact that a portion of the loan is guaranteed by Veteran Affairs. This means banks can give you more favorable terms. This, in turn, means substantial savings for your family. Let’s review how it works.
How the VA Hybrid Loan Works
For the first 60 months (or 5 years), of the loan, it performs just like a regular 30-year, fix-rate loan. Your interest rate won’t move at all during this time. You’re locked in. This is great, because the average homeowner is only in a loan for 3.7-4.2 years. And you can streamline out of VA Hybrid Loan at anytime you deem necessary or advantageous.
After the initial 60 months, the rate on your VA Hybrid Loan can either go up or down. BUT...
It can NEVER go up or down more than a 1% MAXIMUM in any given year. You’re capped there, at 1%. So, if you end up in a very volatile real estate market at the end of your 5 years, you can rest assured that your loan will only move 1%. This is an excellent hedge against uncertainty in the market. And remember, you can streamline out of the VA Hybrid Loan at any time.
Even if the market continues upward, your loan will top out at a maximum of 5% over your loan’s starting point. If you started at 2.25% then the max interest rate you will ever pay will be 7.25%. If the mortgage interest rate ever hit the astronomical 18% of the 1980’s, your VA Hybrid Loan will shield you with it’s 5% cap, while your neighbors could be struggling.
Who Can Qualify for a VA Hybrid Loan?
You may qualify for a VA Hybrid Loan, if you are a veteran with an honorable or general discharge from active service from any of the following branches:
- Air Force
- Marine Corps
- Coast Guard
- A commissioned officer of the Public Health Service
- The Environmental Services Administration
- The National Oceanic and Atmospheric Administration