Military borrowers who want to build equity and own their homes faster should consider a 15- or 20-year VA-guaranteed mortgage.
For VA-eligible borrowers who qualify, reduced term VA-guaranteed mortgage
may be something to consider. With a 15- or 20-year VA-guaranteed loan, military members may pay off their loans in as much as half the time it might take with a 30-year loan.
Most 15- or 20-year VA home loans likely have higher monthly payments than 30-year mortgages, but the reward for borrowers is that shorter terms are often accompanied by reduced interest rates. For instance, a lender may offer two purchase loan options that might look something like this:
- 30-year loan at 4.5% = $1,267 monthly or a total of $456,017 over time
- 15-year loan at 3.5% = $1,787 monthly or a total of $321,697 over time
With shorter-term mortgages, more of each monthly payment is applied toward the principal balance, building equity faster. So, it takes less time to “own” the home. And, a small fortune can be saved in interest over the life of the 15-year loan compared to the total payment of the 30-year loan.
Borrowers with current 30-year mortgages at higher interest rates may stand to benefit the most from a reduced term VA loan at a lower rate
. Consider this example:
- 30-year loan at 6% = $1,499 monthly or total of $539,595 over time
- 15-year loan at 3.5% = $1,787 monthly or total of $321,697 over time
(Taxes and insurance are not included in any of these examples)
Going from a 30- to a 15-year VA mortgage is for borrowers with enough income to afford the higher payments. Borrowers should also calculate a break-even point to make sure the costs justify the savings.
Other advantages to VA loans can include:
- Up to 100% loan-to-value
- No private mortgage insurance
- No prepayment penalties for early payoff
For more information about reduced-term VA home financing, talk with an experienced VA home loan professional.
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