VA ARM Loan Versus a Fixed Rate
In this video we are going to talk about whether a 30-year fixed-rate is safer than a VA ARM loan or also known as the VA hybrid mortgage.
Most people think a 30-year fixed rate is safer than an adjustable rate mortgage. Some people feel that the 30-year fixed-rate is better for people who plan on being in their home for a long time. Others feel that a 30-year fixed rate is better for budgeting purposes especially for someone on a fixed income or approaching retirement. As for the adjustable rate VA ARM loans, most people think they’re dangerous. Some people think they only make sense if you’re not trying to pay your home off and will just move in a few years like someone still on active duty. Assuming a 30-year fixed rate is safer for most people then obviously an VA ARM Loan must be more dangerous. This is a myth, an adjustable rate mortgage is smart in the right situations. We are going to compare the 30-year fixed rate with the VA hybrid ARM loan. We will explain why a hybrid arm is usually safer than a 30 year fixed.
Is The VA ARM Loan Safe?
First let’s define the word safe, safe according to the dictionary means secure from danger or harm or affording protection. In the context of a mortgage safety comes from knowing we can afford your mortgage payments, we know how important that safety is because we’re home owners to. The issue is that when most of us start making decisions about our mortgage we start to get emotional and being emotional is the worst way to make a decision. So which loan is safer? Well, if our payment on a VA ARM Loan change over time, our natural thought processes is that a 30-year fixed rate is going to provide us the most secure situation.
Looking at history, especially the last 10 years, there have been many more times where the VA hybrid loan would have been safer than a fixed rate. So why is a hybrid loan safer? First, your starting payment will be much lower than a VA ARM than that on a 30-year fixed. Because your payment is lower you can pay your home down a lot faster by making more than the minimum payment. If you do not want to pay up your home faster, than you can save hundreds of dollars a month, and put it away for a rainy day. Both choices are safer than the 30 year fixed. Imagine paying off credit card debt 200 or 300 dollars a month faster than you are now. I think we can all agree that the less that you have the more financially secure you are using the right strategies, which our loan officers are happy to go over in depth with you if you are interested. you can pay twenty-five to thirty five thousand dollars more of your home in the first five to seven years with the ARM loan then with the 30-year fixed. Unless of course you win the lottery or inherit your uncles fortune, a VA ARM loan is your best to pay your home off quicker and pay much less interest over time. What about the risk of interest rates on an ARM going up over time? On a 30-year fixed weather in year one or year 21 your principal and interest payment will be exactly the same no matter what even if you’ve been making more than the minimum payment. People on a budget get very concerned about not being able to plan on what their mortgage payment is going to be. But even on a 30-year fixed your monthly payment is guaranteed to up over time. Why, because of taxes and insurance. The cool thing about VA hybrid loans is that they are re-amortize after every year after the initial fixed period. Which means that your mortgage payment can and will go down as you pay down the balance on your home, even if the interest rate has risen. In some cases if you have a three hundred fifty thousand dollar fixed-rate mortgage and a 4.25 percent interest rate you’ll be paying about 1720 dollars a month in principal and interest payments. Let say you pay that loan down two hundred fifty thousand dollars over the next ten years, your still up 4.25 percent and you’re still paying seventeen hundred twenty dollars in principal and interest. Now let’s say someone who took out an are more for the same amount of 350,000, has paid it down to two hundred fifty thousand dollars over 10 years, and now is at a five percent interest rate because it has gone up. Well the person with the ARM Loan has a principal interest payment of 16 50 per which is less than the person who has a fixed rate, even though the fixed-rate loan has a lower interest rate. This is the magic of re-amortization. A 30-year fixed never re-amortizes.
VA ARM Loan ConclusionDespite what most people think the VA Hybrid Loan is usually much safer for someone looking to have fixed-income or heading into retirement. And it is a better way to either pay off your home faster or save money for a rainy day no matter where you’re at in life.