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Paying Extra on a VA Home Loan

By: Grant Moon 02/25/14 10:05 am

Paying Extra on a VA Home Loan

Loan programs that crowded the lending landscape in the last decade had several features no longer found today. The VA didn’t participate in these types of loans but most every mortgage broker and mortgage bankers did have access to certain loan programs approved using substandard approval guidelines. For example, borrowers could get a mortgage with bad credit or even no credit at all. Some loans didn’t verify employment, income or even having enough money to use as a down payment and closing costs. Such loan programs could often have a prepayment penalty on them, prohibiting the borrower from paying extra on the mortgage. VA loans don’t have a prepayment penalty, never have, but if borrowers do want to pay extra on a VA loan, what happens and why would they do it?

Paying extra on a home loan means paying off the loan early. As each monthly payment is made to the VA lender, a portion goes toward the principal balance, reducing the amount owed, as well as an amount paid to the lender in the form of interest. The sooner the loan is paid off, the less long term interest that is paid. That’s why many borrowers choose a 10 or 15 year mortgage compared to a 30 year loan due to the amount of long term interest saved, even though the monthly payments are higher.

Yet since there is no prepayment penalty on a VA loan, how do you make the extra payments? Before you make the extra payment, contact your lender and ask if they have a preferred method but most ask that when paying extra, you note that the extra payment is going toward the principal balance. This will typically be done automatically but it’s good practice to make note each time an extra payment is made.

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