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VA Loan Terms: You Have Other Options

By: Grant Moon 06/23/13 09:08 pm

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VA Loan Terms: You Have Other Options

There are several choices you must make when using your VA home loan benefit. After you get preapproved by a VA lender you must decide between fixed rate loans or adjustable rate mortgages, whether or not to pay discount points for a  lower rate and other features. One of those important features is your loan term.

The most common loan term available today for VA mortgage is 30 years. The 30 year VA mortgage is not only the most prolific of the choices but provides the lowest monthly payment over the course of the loan. The downside to a 30 year loan is the amount of interest paid to the lender. On a $300,000 mortgage at 3.75 percent, if taken to full term the amount of interest paid to the lender is more than $200,000.

The next most common VA loan term is the 15 year fixed rate mortgage. With this loan, much less interest is paid over the term. Again, using a 3.75 percent rate, the borrower pays the lender over $90,000 in interest. The difference between the amount of interest paid between a 30 and 15 year loan term is $110,000 in this example. That’s a lot. So the 15 year loan is the better choice, right?

Maybe. That is if you can afford the higher monthly payments associated with the shorter term. The principal and interest payment on the 30 year example is $1,389 while the payment on the 15 year loan is $2,181. That’s a lot of money and often so much of a difference that the borrower’s no longer afford the home with the higher payments.

But there’s an in-between. There are also 20 and 25 year options even though your VA lender might not advertise them. A 20 year principal and interest payment at 3.75 percent is $1,778 and the 25 year payment is $1,542. If you want to save the most on interest charges and still qualify for the home, ask for all the options.

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