Types of Repayment Plans for VA Mortgages

Different mortgage ratesFor many active military personnel and veterans and their spouses, VA mortgage programs are the best path to home ownership. These loans neither require a down payment nor mortgage insurance nor offer very competitive interest rates. VA mortgages also have very relaxed credit requirements.

Wasatch Peaks Credit Union notes that homebuyers who qualify for a VA loan get various repayment plans from their lender. The borrowers can, therefore, choose the best option based on their current and future financial circumstances. Here are a few repayment options for VA mortgages:

Traditional Fixed

With this option, the lender divides your total loan amount and interest into monthly payments. You, therefore, make a fixed payment over your loan’s lifetime. Each monthly payment reduces the amount of interest and principal. With time, you pay more of your principal and less of the interest.

Graduated Payment

In this repayment plan, you start with small monthly payments, which then increase over time. The repayments in this plan are typically low for the first five years of your loan period after which they grow. These repayments are higher than those in traditionally fixed plans. This plan is ideal for borrowers who expect their income to increase in the future.

Growing Equity

This repayment plan allows borrowers to make equal monthly payments annually. The amount of monthly payments, however, increases each year and reduces the principal you owe. With growing equity repayment, borrowers can pay off their VA loans faster than in other options. In fact, most borrowers repay their mortgages in about twelve years under this plan.

Adjustable rate repayment consists of hybrid and traditional plans. Traditional adjustable rate repayment plans change their interest rates depending on the prevailing rates of a financial index. Hybrid plans give you a flat interest rate for a specific period after which the rate is determined by a financial index. Adjustable repayment plans, however, are tricky because the borrowers cannot plan their monthly repayments well.