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Shrinking window of opportunity for the VA adjustable rate mortgage (ARM)

By: Grant Moon 05/08/13 01:37 pm

Shrinking window of opportunity for the VA adjustable rate mortgage (ARM)

It’s certainly no secret those mortgage rates are at or near historic lows. In fact, the way mortgage rates have been performing over the past year, as you read this mortgage rates may have hit yet another low. For those who have a VA home loan and have anything above 4.00 percent, then a VA streamline refinance might be in your future. Especially if you have an adjustable rate mortgage, or ARM and want to lock in the stability of VA fixed rate loan.

But let’s not forget about the VA ARM.

Really? Would anyone consider refinancing into an ARM today when fixed rates are so low? Probably not, but there are existing VA loans with an adjustable rate and right now they’re doing just fine, thank you.

For example, if you have a VA ARM and were to adjust today, you rate would be around 2.65 percent. On a $300,000 loan, the principal and interest payment would be $1,208 per month. A 30 year fixed rate can be found for around 3.50 percent, for a payment of $1,347 on the very same loan amount.

In fact, for those VA mortgage loans that have had VA ARMs over the past five years, homeowners have been able to take advantage of falling rates without having to refinance. That’s the nature of ARMs, they can adjust and they don’t have to always adjust up.

For example, five years ago, a VA ARM was around 5.70 percent and fixed rates were in the 6.25 percent range. The following year, an adjustable rate dropped to 4.75. The next year? 3.75. And the next? 3.25 and finally at today’s rate at 2.65.

Adjustable rate mortgage loans adjusted lower each and every year, following general interest rates overall.

If you have a VA fixed rate loan now, should you refinance into an ARM? That’s not good advice. The prudent choice is to stay with a fixed rate. But those with a VA ARM have really enjoyed the ride.



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