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VA Loan Interest Rates

Interest rates for veterans with VA loans are just as volatile as conventioanal and FHA interest rates.  Understanding how interest rates work, why they change daily, and what factors affect your interest rate is a very important part of home ownership for veterans. 

 

A good general rule of thumb for VA inerest rates is that they should normally be about .25%-.375% lower than other non VA loans.  The Department of Veterans Affairs does not set the interest rate for veterans nor does it lend money.  Each VA approved Lender sets its own VA loan rates on a daily basis. 

Fixed Rate Mortgages for Veterans

The most common type of VA interest rate is the 30-year-fixed interest rate.  A fixed rate mortgage is normally the safest option for veterans who plan on living in their home for an extended period of time or perhaps forever.  A fixed rate mortgage can be fixed for 30, 25, 20, 15, and with some banks and lenders evern 10 years.  Fixed rates will not change and this allows veterans to budget and know what their mortgage payment will be forever. 

Adjustable Rate Mortgages for Veterans (Hybrid Arm Loan)

With the signing of the Veterans Benefits Improvement Act of 2008, the VA hybrid ARM loan was once again an option for veterans.  Recent happenings in the housing and mortgage sectors have caused many homeowners to be concerned or even scared of the adjustable rate loans.  It is very important to understand that the Department of Veteran's Affairs would not endorse or allow veterans to take an interest rate that could be harmful or damaging.  Here at LowVARates we suggest consulting with one of our approved VA lenders to determine if the VA ARM loan is right for you. 
A general rule of thumb for the hybrid ARM for veterans is that if you plan on moving, selling, or refinancing your house within 3-7 years then the VA ARM could be the better interest rate for you. 

Who sets interest rates, why do interest rates change, and how to know when to lock your interest rate in?

Interest rates are set daily by each individual bank or lender.  We do not post daily interest rates on our site because each of our approved VA lenders will have different interest rates.  What we do offer here at LowVARates however is a guarantee that one of our approved lenders will get you the lowest Annual Percentage Rate (APR) or we will pay you $250.  It is important for you to do your homework and make sure you are getting a competitive interest rate for your VA loan.

Interest rates change daily.  Interest-rate movements are based on the simple concept of supply and demand. If the demand for credit (loans) increases, so do interest rates. This is because there are more buyers, so sellers can command a better price, i.e. higher rates. If the demand for credit reduces, then so do interest rates. This is because there are more sellers than buyers, so buyers can command a lower better price, i.e. lower rates. When the economy is expanding there is a higher demand for credit, so rates move higher, whereas when the economy is slowing the demand for credit decreases and so do interest rates.

A general rule for interest rates is:

  • Bad news (i.e. a slowing economy) is good news for interest rates (i.e. lower rates).  This is why we have seen the lowest interest rates on record from about late 2007-early 2010.  Our suffering economy has created an opportunity for extremely low interest rates.
  • Good news (i.e. a growing economy) is bad news for interest rates (i.e. higher rates).

A major factor driving interest rates is inflation. Higher inflation is associated with a growing economy. When the economy grows too strongly, the Federal Reserve increases interest rates to slow the economy down and reduce inflation. Inflation results from prices of goods and services increasing. When the economy is strong, there is more demand for goods and services, so the producers of those goods and services can increase prices. A strong economy therefore results in higher real-estate prices, higher rents on apartments and higher mortgage rates.

Mortgage rates tend to move in the same direction as interest rates. However, actual mortgage rates are also based on supply and demand for mortgages. The supply/demand equation for mortgage rates may be different from the supply/demand equation for interest rates. This might sometimes result in mortgage rates moving differently from other rates. For example, one lender may be forced to close additional mortgages to meet a commitment they have made. This results in them offering lower rates even though interest rates may have moved up!

There is an inverse relationship between bond prices and bond rates. This can be confusing. When bond prices move up, interest rates move down and vice versa. This is because bonds tend to have a fixed price at maturity––typically $1000. If the price of the bond is currently at $900 and there are 10 years left on the bond and if interest rates start moving higher, the price of the bond starts dropping. The higher interest rates will cause increased accumulation of interest over the next 5 years, such that a lower price (e.g. $880) will result in the same maturity price, i.e. $1000.

So how does a veteran know when to lock in his/her interest rate?  Like the paragraph above explains, having a basic knowledge of the economy or important news on the economy can assist you in determining what interest rates may do in the short term.  We strongly suggest however, that you work with one of our approved VA professionals to determine when you should lock your interest rate in.  Very rarely do we suggest waiting or floating your interest rate once your VA loan has been approved.  Though rates change daily, those changes or normally small and not worth the risk of missing the opportunity for home ownership or an approved refinance loan.

 

 

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