With fixed rates still near record lows with good reason to believe they’ll stay there as we approach spring time, it’s prudent to pick a fixed rate VA loan. There are two primary choices, a fixed and a hybrid, but if you’re buying and keeping the property for several years, it makes sense to lock in today’s low fixed rates where your payment will never change. Is there ever any reason to look at a hybrid in today’s market?
A hybrid is in reality an adjustable rate mortgage but works like a fixed rate for the first few years before turning into an annual adjustable rate loan. Most VA lenders today offer a 5/1 hybrid ARM, where the rate is fixed for five years then changes into an ARM for the remaining term. Why even consider a hybrid? If you’re active duty and anticipate a move within the next few years it might be something to consider. Otherwise, stick with the fixed. What does moving have to do with anything?
Depending upon current markets, hybrids can have lower initial rates compared to fixed rate loans. That means you can enjoy a lower monthly payment for the first five years compared to a 30 year fixed rate loan. That is, if you’re moving before or soon after a five year period, a hybrid can actually be the better choice. Yes, if you do take a hybrid and you don’t in fact PCS, a hybrid didn’t work out. But there are choices and something you need to discuss with your loan officer. Fixed rates today are always a good choice, but a hybrid can sometimes be a little better.