Q. If I switch a Failover Cluster to 2016 native mode will all Hyper-V VMs automatically be upgraded to the 2016 VM Version?
A. No. Even if all nodes in a cluster are 2016 and you switch the cluster to 2016 functional level via the Update-ClusterFunctionalLevel cmdlet, any VMs that were version 5 (2012 R2) will stay version 5. This ensures you can still move them to a 2012 R2 Hyper-V host if required. You need to manually upgrade VMs to version 8 (the 2016 level) when you are sure backwards compatibility with 2012 R2 is no longer required, i.e. you will never need to move the VM to a 2012 R2 Hyper-V host. The process to upgrade all VMs in a cluster is outlined at http://windowsitpro.com/hyper-v/update-all-vms-cluster-latest-configuration-level-easily.