VA 5/1 ARM (Adjustable Rate Mortgage)
The VA 5/1 ARM loan provides for an initial fixed interest rate for a period of five years. After the initial period the VA 51/ arm loan will adjusts annually. The 5/1 VA Hybrid ARM products allow a 1% annual interest rate adjustment after the initial fixed interest rate period of 60 months. There is a maximum adjustment of a 5% interest rate cap over the life of the loan. This means the the loan can never go higher than 5% over the initial interest rate. Interest rate adjustments must occur on an annual basis, except for the first adjustment which may occur no sooner than 60 months from the date of the borrower's first payment on the 5/1 ARM. The loan term is 30 years for this loans. There are no balloon payments as the loan is amortized over 30 years. There is also no negative amortization.
VA 5/1 ARM INDEX AND MARGINS
The index is the weekly average yield on U.S. Treasury Securities adjusted to a constant maturity of one year. Also known as the 1-Year Constant Maturity Index. VA ARM loans have either a 2.00% margin or a 2.25% margin depending on the lender. While the margin will never change once the loan is originated, the index will fluctuate.
VA ARM LOAN LIFE CAP
Initial Note rate plus 5%. This means that the maximum that the interest rate can change is 5% over the starting interest rate for a VA 5/1 ARM loan.
VA ARM ADJUSTMENT CAP
One percent (1%) annually after the initial fixed rate period of 5 years.
VA 5/1 ARM LOAN QUALIFYING RATE
Initial Note Rate. This is the rate that the lender uses to see if you qualify for a VA 5/1 ARM loan.
VA 5/1 ARM FIRST ADJUSTMENT DATES
Government loans only adjust 4 times per year (January 1, April 1, July 1, and October 1). The loan's first adjustment will occur with the corresponding adjustment period that follows the initial fixed period. For example, if the initial period ends in June, the rate will adjust in Julyl and then annually thereafter until maturity.
5/1 VA ARM: the first rate adjustment will occur between the 60th and the 66th payment due date.