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Paying Points on a VA Loan

By: Grant Moon 02/11/13 09:55 pm

Paying Points on a VA Loan

Of the myriad of decisions you’ll make when applying for a VA loan, one of the biggest decisions is what your VA mortgage rate will be.  After all, you’ll be paying for that decision each and every month as you make your VA mortgage payments. And even though you’ve done your homework and found the absolute best VA lender your work is not yet done.  You have to choose an interest rate.

Yes, even though you shopped for rates and compared VA lenders you still have to decide the interest rate for your VA mortgage.  The biggest question regarding your rat might be whether or not to pay any discount points, or simply “points.”  A point is expressed as a percentage of your loan amount and is a form of prepaid interest to the lender.  Paying a point lowers your interest rate.  Paying two points lowers it even more.  How much more?

By taking a 30 year fixed VA mortgage of $250,000 and applying rate of 3.25 percent, the principal and interest payment is $1,088.  If you wanted to lower your rate by paying a point, you could lower your rate by one-quarter percent to 3.00.  The new payment would be $1,054.  If you paid two points, or in this example $5,000, your rate would to about 2.75 percent for a payment of $1,020.

But lenders don’t just offer rates in one-point increments.  VA lenders can offer interest rates in one-half point increments.  Doing so will lower a 30 year fixed rate by approximately one-eight percent.  Again, using this example, you might lower your rate from 3.25 percent to 3.125 percent and only pay one-half point, or $1,250, for a payment of $1,070.

Sometimes paying discount points can be an expensive proposition and may not always be in your best interest.  But when getting quotes from your VA lender, remember there are more choices available than what’s advertised.  And it can be easier on your wallet, too.

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