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Your VA Point Option

By: Grant Moon 08/31/13 08:02 am

Your VA Point Option

It’s difficult to compare a VA mortgage with conventional loans. Mortgage programs underwritten to Fannie Mae or Freddie Mac guidelines don’t have a loan program that requires no money down. Yes, those same programs offer a low down payment program, as little as 5.00 percent, but those same programs will have higher rates and a hefty monthly mortgage insurance premium. But one thing you can be sure of, VA loan programs, while not requiring a down payment, have interest rates as competitive as any other program and you can lower your rate even further by paying discount points.

Discount points, commonly referred to as “points” are a form of prepaid interest paid to the lender. A point is expressed as a percentage of the loan amount being borrowed. One point equals one percent of the loan amount, one-quarter of a point equals one-quarter of one percent of the loan amount and so on.

For example, you want to borrow $300,000 using your VA home loan benefit. The VA lender says your interest rate for a 30 year fixed rate mortgage is 4.00 percent. But the lender also has multiple options for that same loan program, some with points, and some without. So what’s the difference?

A so-called Discount Point in fact discounts the interest rate. If you pay a point or any portion thereof, your rate will be lower compared to an interest rate without any points. Paying one point on a 30 year fixed rate loan will typically lower the interest rate by one-quarter of one percent. For example, if a 30 year fixed rate is at 4.00 percent without any points, the rate might drop to 3.75 percent if you paid one point, or $3,000 on a $300,000 loan.

Paying points is a decision strictly up to you. You can choose to pay points or not so speak with your loan officer and run the numbers to see if paying a point or two is in your best interest.

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