The two major types of loans available in the VA program are fixed and ARM (adjustable rate mortgages). There are benefits to both types and it’s important to understand what they involve before you make your final decision.
Fixed Rate VA Loans
A fixed rate mortgage does not change throughout the life of the loan. The actual amounts of principle and interest you pay will change, but the final monthly payment will stay the same. In other words, in the beginning 60 or 70% of your payment may be going directly to the interest. Then, toward the end, the majority of your payment will be for the principle.
The stable nature of a fixed rate mortgage makes it easier to budget your expenses. You are also more protected from the whims of a dynamic marketplace that could go up or down significantly throughout the term of the loan.
However, if you try to get a loan when the rates are high, it can be a little more difficult. You should also be aware that you may have to watch the market rates dip down much lower than yours, and you’ll have to make a decision on whether it is time to refinance.
Fixed rate mortgages come in 30, 20, or 15-year loans, but most home buyers tend to choose the 30-year option. This way they can keep their monthly payments low, even though the total cost (from paying interest for a long time) will be higher.
An adjustable rate mortgage changes over time. Most lenders will be able to take advantage of much lower rate at the beginning of the loan that will remain constant for a specified time. The exact length will be set in the terms of the loan, and once it is over the rates will start to adjust by a specified amount.
VA ARM loans attract many potential home buyers because of the initial lower interest rates and monthly payments. These lower payments also mean that some people can even qualify for larger loans.
These changing interest rates can be very troublesome, though, if you’re not ready for it. If the rates start to grow out of control, you may find yourself experience some financial difficulties. It may be harder to plan for every eventuality, but it may be worth it for the lower payments.
Which is Right for You?
Choosing which type of loan you acquire is an important step, and one that shouldn’t be taken lightly. If you’re unsure exactly which one is right for you, contact us today to learn about all your options.