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How Are VA Loan Interest Rates Determined?

By: Grant Moon 09/05/12 06:47 pm

How Are VA Loan Interest Rates Determined?

 

VA Loan Interest Rates are rates on mortgages that lending institutions establish which changes frequently. Interest rates for any mortgage product such as a VA Loan tend to fluctuate depending on supply and demand. When demand for mortgages is high then it is common for interest rates to rise. Or, if the economy is doing well and other investments such as the stock market are producing good returns then likely the mortgage market will demand higher yields on their investment which translate to higher interest rates to the borrower.

The Veterans Administration or Government does not set interest rates that lenders charge. Your rate that is offered by your lender is normally determined by what mortgage bankers call the secondary market.

If you have ever done a mortgage before then you know that the bank that does your loan is normally sold to another bank shortly after finalizing your loan. Often, before you have even signed your closing documents another bank has already been identified to purchase your loan from the originating lender. When another bank purchases your loan it is often referred to as a secondary market transaction.

The secondary market purchases your loan and either decides to hold it on their “books”, also known as portfolio your loan, or package your loan into what’s called a mortgage backed security and sold to Wall Street. Often the bank your loan is sold to will stay on as the mortgage servicer of your loan and will continue to collect your payments even though your loan was sold to an investor. The two largest investors are Fannie Mae and Freddie Mac. It is estimated that Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) own or guarantee a combined 90% of all new mortgages.

So, now that we’ve established a basic understanding of how the mortgage industry works we can now determine how you get the rate that you’re offered. Your originating lender will make money through mortgage fees and a premium that the secondary market will pay when the loan is sold.  Since mortgage originators often have different investors the rates that you are offered vary from lender to lender. Also, most lenders have some flexibility on the rates offered.

For your convenience VA Loan Captain allows you to compare rates with multiple VA Approved Lenders. This provides you with the opportunity to make an informed decision about rates being offered. In addition, each of the lenders that operate on VA Loan Captain’s platform is required to sign the Veterans Guarantee Pledge ensuring the highest ethical, professional, and legal standards.

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