VA Mortgages
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Choosing the right type of VA mortgage
If you are a veteran who is planning to take advantage of your entitlement in the VA Home Loan Guarantee Program than you need to consider what type of mortgage is right for you. The VA guarantees the mortgage loan you borrow in order to purchase a home, but you are the one who decides what type of loan to borrow.
Depending on your lifestyle and personal circumstances there are a variety of loans types to choose from. Some of these include:
- A fixed rate loan. If you choose a fixed rate loan then your payments won’t change throughout the life of your loan. If you have your property taxes and home owners insurance included in the monthly payment then this amount could change slightly due to levies and premium increases or decreases, but overall a fixed rate loan is a set interest rate for the life of the mortgage. People who generally choose this type of mortgage are planning to stay in the home for a long time or like having a fixed monthly mortgage payment in order to budget their money accordingly.
- An adjustable rate loan. If you choose an adjustable rate mortgage loan then your payments will remain fixed for the initial period of time specified in the mortgage loan, but will begin to fluctuate with the market after that time period has expired. For instance, you may get an adjustable rate mortgage where the initial fixed period is for 3 years at 5% interest and then after the 3 years is up the going market rate is 7% and your monthly mortgage payments begin to increase because your interest rate is now adjustable. People who choose an adjustable rate mortgage may not be planning to stay in their home for longer than the fixed period and since adjustable rates tend to be lower initially than fixed rate mortgages they could save money by not getting a fixed rate mortgage. Adjustable rate mortgages are also used by people who have credit issues. The fixed interest rate period allows for creditworthiness to be established as long as the borrower makes their monthly mortgage payments on time, and then the borrower needs to refinance before the rate becomes adjustable.
- Interest only loans. This type of mortgage loan allows the borrower to make lower payments at the begging of the loan and then larger payments later. The initial period of payments the borrower is only paying the monthly interest on the loan with no principal included. After the initial period is over then the borrower begins to make full payments that include interest and principal. People who usually choose interest only loans expect to make more money in the near future when their higher payment amount kicks in. You may be close to graduating from college or your wife will be going back to work after the baby is old enough, and you know that your income will increase soon. By taking an interest only loan you can afford the lower payments now and deal with the larger payments in the future when you expect to have a larger income.
- Hybrid loans. This type of mortgage is gaining in popularity because it is a mix between a fixed rate loan and an adjustable rate loan which is appealing to most people. Some people may plan to live in the home they buy for the rest of their lives, and some people may plan to only live there for a couple years, but most people fall somewhere in between. Hybrid mortgage loans offer a longer initial fixed interest rate period of around 10 years and then the rate becomes adjustable. This is appealing because most people live in their homes for 5 to 10 years before they decide to trade up or down depending on their circumstances.
If you are a veteran who is looking to get a mortgage loan to purchase a home through the VA Home Loan Guarantee Program, make sure you are familiar with the various types of loans you can acquire and choose the one that is the best for your lifestyle.
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