Once you’ve decided to go ahead and apply for a VA loan, the next step is choosing what kind of repayment plan you want to be on. There are five options you can choose from, and it really comes down to how much you are willing to pay up front and in the future. This article will take a closer look at these five options which include a traditional fixed payment, growing equity mortgage (GEM), graduated payments mortgage (GPM), traditional ARM, and Hybrid ARM.
The traditional fixed loan is a common type of loan not only for VA loans, but other types of loans as well. As the name indicates, it is a fixed interest rate that does not change over the years. This repayment option is good for people who want stable payments month after month.
Graduated Payment Mortgage
GPMs start out with a very low month-to-month interest rate that increases gradually over time, but levels off in the sixth year. This is a great option for first-time homebuyers who might not be able to afford high mortgage payments right off the bat (especially if you have to factor in furniture, remodeling, etc.). It is also good for people who are up for promotions and pay increases in the near future.
Growing Equity Mortgage
GEMs also increase over time. However, with this payment option, the price increase is only applied to the principal of the loan. In this way you are able to pay off your loan more over time, saving you on interest rates as you go.
Adjustable rate mortgages are a great idea for people who want to plan ahead. If you think you might want to get a VA Streamline refinanced loan, than this is a good option. The VA ARM is different than traditional ARMs in that the loans are adjusted annually and are limited to a one percent increase. The total change over the life of the loan is limited to 5 percent.
A Hybrid ARM is locked in for at least three years before the rate is adjusted. However, if the loan is fixed for five years, the adjustment can be as high as 2 percentage points. Just as with the traditional ARM, there is a cap on the change in interest at 5 percent over the lifetime of the loan.