VA Loan Rates

The VA program was a very good deal in the decades after World War II. No down payment was required, which still remains the case today. There was no guarantee fee needed at that time to get a VA Loan. This is no longer the case; and the interest rates on both VA Loans and FHA mortgages were legally limited to a maximum interest rate. This changed and is also no longer the case.

The maximum interest rates were designed to protect borrowers from being charged too much for their loans, and during normal times this worked well. But tight money periods began to occur more often and the VA Loan rates ceiling resulted in the supply of VA and FHA loans drying up completely. As a result, the VA loan rates became free. This means the ceilings were eliminated.

The VA was quite paternalistic in those days. Not only the VA Loan rates were limited, but the VA set price ceilings on houses too. A veteran who received a loan under the VA program, was not allowed to pay more for a house than the value the VA said it was worth! But the VA subsequently changed that rule as well. Today, a VA loan can’t be larger than the appraised value of the home he wants to buy, but the veteran can pay more than this value without losing the VA loan. They just must pay the difference by themselves, in cash. Doing this, the veteran also qualifies for interesting VA loan rates.

Are VA Loan Rates Lower Than Normal Interest Rates?

A big advantage of a VA Loan is the cheap interest rate a VA borrower gets in the mortgage market. Lenders offer better rates for VA Loans, mostly between a half percent to a full percentage point lower than a normal standard loan.

How is that possible? Banks use interest rates as a safety cushion against risk should the borrower go into default. Because a VA Loan is guaranteed by the government, the lender takes less risk if the VA loan should default. So the bank is sure to get it’s money back and this means lower VA Loan rates!

What does a cheaper Loan Rate do for You?

Cheap VA loan rates can lower your monthly mortgage payments or allow you to buy a larger home for the same money. Most people understand how important the loan rate is, but often they don’t fully realize how big the savings could be, both on the monthly payment as well as the total savings over the life of the VA loan.

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3 Responses to VA Loan Rates

  1. Luisa says:

    Thanks a bunch for finding the time to describe the terminlogy for the inexperienced persons!

  2. Pingback: Mike

  3. Pingback: Refinancing? Or Playing the H-A-R-P | Ultimate Article

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