The Mortgage for the Middle-Aged Veteran Couple
Middle-age is a unique stage of life that presents unique needs and challenges that those in other phases of life do not have to deal with. A veteran middle-aged couple can have even more unique situations due to one or both of the spouses’ time spent in service. One of the things you may be dealing with is what you want to do with your home. Chances are you’ve bought a home by now, and you’ve probably refinanced it at least once. Well, the best mortgage option for you depends on what situation you’re in. You or your spouse may have just retired from the military, left the military more than 10 years ago, or have decided to extend your stay in the military.
If You’ve Just Retired from the Military
First off, congratulations! Take a deep breath, and relax for a few minutes. If you’ve just retired from the military you’re probably not ready to stop working completely, both because of the limited retirement pay and because you’ll just get bored if you’re not doing something. The nice thing about that is you can combine your salary from your new job with your military retirement pay and probably pull in more money than you were before retiring. For you, your best loan option is probably to refinance to a VA hybrid ARM. Why? Well, the VA has worked hard to take most of the risk out of the hybrid ARM, but even the little risk they haven’t taken out is pretty much knocked out by your situation in life.
You’ve probably got some equity built up in your home already, or you’ve got savings you can tap into to make a down payment if you don’t already own a home, and you’ve got a somewhat larger income than you had before. Also, your kids are growing up, which means they’ll be off to college in just a few years. With a hybrid ARM, you can get an insanely low-interest rate for the first 3 years, and it can only adjust once per year at a maximum of 1% per year after that. Plus, the interest rate can never go higher than 5% from its starting rate over the life of the loan. With how much equity you’ve built in already, and how much principal you can pay off just in those first three years, even if your interest rate goes up the maximum amount for five years straight your monthly payment is likely to go down.
If You Left the Military a While Ago
Chances are, if this is the case, then you aren’t eligible for retirement pay. However, chances are also good that you’ve gotten into a steady career by this point and are doing well for yourself. You’ve also probably got some high-school aged kids who are starting to think about college and moving out. One of your highest priorities should be paying off your house. Every dime you pay in interest is a dime you just flushed down the toilet. That’s why the best mortgage options for you are the hybrid ARM or the 15-year fixed. Start by looking at the hybrid ARM (check the paragraph above for why the ARM is so good), but you’ll want to keep in mind your income level. Run a few scenarios to see what your monthly payment would be at the highest possible interest rate the ARM might rise to. If it’s a lot higher than you would feel comfortable making, you may want to go with a 15-year fixed. Avoid the 30-year fixed at all costs: you’ll pay a higher interest rate and it will be amortized for double the number of years.
If You’ve Decided to Extend Your Time in the Military
Depending on your rank, you may still be looking at moving every few years, or you may be likely to stay in one place for awhile, possibly until you finally retire. If you’re going to move every few years, there’s really no reason at all to avoid the hybrid ARM, because you can enjoy the ridiculously low interest rates for the initial fixed period, and you don’t have to worry about the possibility of the rate rising because by the time that’s a concern you’ve already moved! If you’re planning on staying in the house, you will probably want to follow the same pattern as discussed in the paragraph above. Start by looking at the hybrid ARM because it’s still likely to be your best option, but if you’re not comfortable with how much of your income the hybrid ARM may take up, you may want to go with a 15-year fixed.
Summary & Conclusion
For the most part, the best option is going to be the hybrid ARM, but the most important thing to remember is to choose the option that will allow you to pay your home off the fastest. You may feel like you’re still far away from living on a fixed-income, but 20 years is not that long in house-years, and you’ll be very glad you penny-pinched to pay your home off sooner.