VA Loan Repayment Plan
If you have decided to use a VA Loan to purchase your new house, the next step will be to decide what type of repayment plan you want. The VA has five different repayment options: traditional fixed, traditional ARM, hybrid ARM, graduated payments mortgage (GPM) and growing equity mortgage. Each repayment plan is designed to meet specific needs and income levels, so take a moment to decide which plan is best for you.
A traditional fixed repayment plan requires you to pay back a specific, fixed interest rate. This is the same as with conventional loans, and is great for people who crave stability and predictability with their payments. Even if you think interest rates may change in the coming years, you can always apply for a VA Streamline Refinancing Loan to take advantage of lower interest rates.
The traditional VA ARM is similar to a conventional ARM in that the interest you pay changes over time with the market. However, unlike a conventional ARM, the VA adjusts the rate annually, but no more than one percent at a time. The VA also puts a cap of five percent change over the lifetime of the loan, so you never have to worry about your payments jumping dramatically.
A hybrid ARM starts out at a fixed rate for at least three years and then adjusts annually after that. If the fixed rate is held for five years, the rate can change by up to a maximum of two points the first year. However, just as with a traditional ARM, the VA puts a limit of five percent change for the lifetime of the loan.
Graduated Payments Mortgage
Graduated payments mortgages (GPM) start out with very low payments that increase over time, finally leveling off in the sixth year. This type of repayment plan is good for people who will be able to afford higher payments in the coming years, but not necessarily right from the beginning. This could be due to a raise, promotion, sale, etc.
Growing Equity Mortgage
A growing equity mortgage (GEM) is similar to a GPM in that the payments increase over time and level off in the sixth year. However, the increases are applied solely to the principal of the house. This makes it possible for you to pay off your home faster than you would with a traditional loan. This is great for people who can afford it, as you will end up saving on interest rate payments in the long run.
Remember to talk with your loan officer if you have any questions regarding the repayment options. It’s important to find a plan that you are comfortable with and will be able to pay off easily year after year.
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