What is the limit on adjustments for a VA adjustable-rate mortgage (ARM)?

The correct answer is based on the guidelines surrounding VA adjustable-rate mortgages (ARMs). For a VA ARM, the limit on adjustments refers to how much the interest rate can increase at any adjustment interval, as well as the maximum increase over the life of the loan.

In most VA ARMs, the initial adjustment period typically allows for a 2% increase after the first adjustment, and subsequent adjustments are often limited to 1% per interval. However, the critical part to note is that the cumulative adjustment limit over the entire life of the loan is generally capped at 5%. This means that regardless of how long the loan lasts or how many adjustments occur, the interest rate will not exceed the initial rate by more than 5% cumulatively.

Understanding this limit is crucial for both lenders and borrowers, as it ensures that borrowers are protected from excessive interest rate increases over time, providing them with a degree of predictability regarding their future payments. This structured adjustment limit reflects the VA's commitment to maintaining affordability for veterans seeking home financing options.