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Adjustable Rate Mortgages (ARM)

(Reference VA website: www.homeloans.va.gov for VA Circular 26-04-12, December 10, 2004)

Traditional ARM

 VA can guarantee loans made with the one-year ARM feature. The interest rate may be increased or decreased a maximum of one percent on an annual basis. The maximum increase in the interest rate over the life of the loan is 5 percent.

Hybrid Adjustable Rate Mortgage

 VA may also guarantee loans with the Hybrid ARM feature. The interest rate on a Hybrid ARM remains fixed for a period of at least 3 years, after which the rate can be adjusted annually. If the initial interest rate remains fixed for less than 5 years, the first rate adjustment is limited to a maximum increase or decrease of one percent and the maximum increase in the interest rate over the life of the loan is 5 percent. If the initial interest rate remains fixed for 5 years or more, the first rate adjustment is limited to a maximum increase or decrease of two percent and the maximum increase in the interest rate over the life of the loan is 6 percent. After the first rate adjustment, subsequent annual adjustments are limited to a maximum of two percent.

 Unless extended by law, Traditional and Hybrid ARMs are only authorized through September 30, 2008.

OCCUPANCY

The veteran must certify that he or she intends to personally occupy the property as his or her primary residence.

For an IRRRL, the veteran may certify that he or she previously occupied the property.

GEOGRAPHICAL LIMITS

A VA guaranteed loan may be used to secure real property located in the United States, its territories, or possessions ( Puerto Rico, Guam, Virgin Islands, and American Samoa).