Veteran Mortgage Loans vary in form and length. The type of VA mortgage loan an individual selects will vary according to an individual’s needs.
Here is a quick overview of some of the types of VA loans:
Fixed Rate- Fixed interest rate home mortgage loan offers a borrower to lock a certain interest rate for the life of their loan unless the borrower chooses to refinance. The interest rate for the loan never changes; no matter what is happening in the market. This gives a borrower a sense of comfort from a fluctuating market.
Advantages: Even if interest rates rise, you can keep your interest rate.
Disadvantage: If interest rates go down, your rate stays the same.
Term of Fixed Rate loans: Fixed VA mortgage rates are available for 40, 30, 25, 20, 15 and 10 years. Usually, the shorter the term of the loan the lower the interest rates. Longer term VA loans can be easier to get because a borrower does not need as much income. The most common fixed rate loan lengths are 30 and 15-year loans.
30 Year Loan: This is the most popular mortgage. Monthly payments are low since the life of the loan is long, but because of this there will be more interest over the life of the loan.
15 Year Loan: This loan life is shorter, resulting in a borrower owning their house quicker. A 15-year loan usually has a lower interest rate, but higher monthly payments.
Adjustable Rate (ARM) – Adjustable rate mortgages, VA Hybrid ARM, or Variable rate mortgages are loans where the interest rate adjusts based on indexes and or prime rates. With a variable rate, the interest is tied into the lending institution’s prime rate. Interest rates can vary from month to month. While the payment remains and only fluctuates slightly, the amount applied to the principal can change regularly. Typically lenders will set a cap for how high the interest can reach annually. Because of the flexibility, Adjustable Rate Mortgages often are less expensive than fixed-rate mortgages.
Advantages: If you are going to be only staying in your home a short time an ARM is great since a borrower is able to exploit lower interest rates. Variable rate mortgages are also great if a borrower believes that interest rates will lower soon.
Disadvantages: It can be frustrating having your rate change sometimes month to month. If the market is bad, a borrower’s rate will be bad.
Terms of Variable Rate Mortgage or ARM- The term for ARM is usually 1, 3, 5, 7-year terms.
Hybrid Adjustable Rate Loan or Hybrid ARM- A hybrid ARM features an interest rate that is fixed after an initial period but then acts like an ARM thereafter. It hybrids together both a fixed rate and an Adjustable rate mortgage.
Advantages: Hybrids are the best of both worlds, getting a fixed rate at first but then later having more flexibility with the Adjustable Rate. Hybrids are particularly great if a borrower will not be staying in their home long.
Disadvantages: They have the disadvantages of both a fixed and an adjustable rate.
Term of Hybrid ARMS: Hybrid ARMS term is referred to first by the fixed amount rate and then the adjustable amount rate periods. For example; ARM 3/1 is a fixed mortgage rate for 3 years and an adjustable rate for 1 year. The date the fixed rate switched to the adjustable rate is known as a reset date. A Hybrid ARM transfer some interest rate risk from the lender to the borrower allowing for lower interest rates.
VA Jumbo Mortgages– A jumbo mortgage is a mortgage that is higher than the typical loan amount. Jumbo loans may have a higher interest rate and different requirements for down payments than smaller home loans due to different underwriting requirements. Fannie Mae and Freddie Mac set the standard for the maximum amount of a loan before it is considered Jumbo. The current limit is 417,000. Any home that costs more than 417,000 would be considered a Jumbo loan. With Jumbo loans, Veterans will need to pay 25% on any amount over $417,000. Here is an example of how a jumbo loan works. A Veteran finds a home for 600,000. His maximum VA home amount is 417,000 with a $0 down payment. The Veteran pays 25% of 183,000 or 45,750. This amount acts in many ways similar to a down payment. Jumbo loans are required if you want to buy a more expensive home because lenders feel a greater risk.