VA Loan Rate Options: Fixed or Adjustable?
When it comes to refinancing a mortgage, VA loan holders have several options to consider in regards to their interest rates. Two of the most popular options are fixed rate and adjustable rate mortgages. Here, we compare and contrast the two to help you decide which is the best option for your financial goals.
Fixed Rate VA Loans
A fixed rate VA loan is a type of mortgage that locks in the same interest rate for the life of the loan. While the interest rate may be slightly higher initially, it offers the security of a consistent monthly payment amount for the duration of the loan. This type of loan is ideal for those who are risk-averse and prefer to have predictable monthly expenses.
Additionally, fixed rate VA loans can offer peace of mind during times of economic uncertainty or rising interest rates. Some other benefits of fixed rate VA loans include:
- Long-term stability
- Protection against interest rate hikes
- Predictable monthly payments
- Easier budgeting and financial planning
However, it's important to note that fixed rate VA loans typically have a higher interest rate than adjustable rate mortgages. It's also worth considering that if interest rates drop significantly in the future, you may be unable to take advantage of those lower rates without refinancing your entire loan.
Adjustable Rate VA Loans
An adjustable rate VA loan, also known as an ARM, is a type of mortgage with an interest rate that fluctuates over time. These mortgages often offer a lower interest rate in the beginning of the loan term, which makes them appealing to borrowers looking for a lower initial monthly payment. However, this type of loan is considered riskier as the monthly payment can rise or fall drastically as interest rates fluctuate. Therefore, an ARM is best for those who are comfortable with risk and have the financial cushion to absorb sudden rate increases.
Some other benefits of adjustable rate VA loans include:
- Lower initial interest rates
- Potential for lower monthly payments early on
- Ability to take advantage of dropping interest rates without refinancing
It's important to note that ARMs come with caps on how much your interest rate can increase over time. These caps help to avoid sudden, dramatic increases in your monthly payment. However, it's important to carefully consider your future financial situation before committing to an ARM. If interest rates rise significantly, you may find yourself struggling to make payments on an increased monthly payment.
Bottom Line
Ultimately, the decision between a fixed rate or adjustable rate VA loan comes down to your personal financial goals and comfort with risk. If you prefer long-term stability and are willing to pay slightly higher interest rates, a fixed rate VA loan may be the best option for you. However, if you're comfortable with risk and prioritize a lower initial monthly payment, an adjustable rate VA loan may be a better fit.
Regardless of which option you choose, it's important to shop around for the best possible interest rates and terms. Refinancing your VA mortgage can save you significant money over the course of the loan, so take the time to carefully consider your options and find the loan that best fits your financial situation.