The VA, like many other loan programs, offers a variety of loan options including the fixed rate and adjustable rate loans. Since you have the option, you’ll have to decide which type of loan works best for you.
We help you discover the questions to ask yourself below.
How Long Will you be in the Home?
The first question pertains to your plans for the future. Will you stay in the home for the long-term or do you know you are here just for a few years? If you know beyond a doubt what your plans are, you can choose the right loan.
- If you plan to stay for a long time, the fixed rate loan is often the better choice. This way you don’t have to worry about adjusting interest rates and being unable to afford your mortgage. You also don’t take the gamble on interest rates before the ARM rate adjusts. If you think you’ll refinance before then and get a great rate, you could be in for an unpleasant surprise if things don’t change.
- If you plan to move in the short-term, an ARM may make sense. Even though you take a risk on the adjusting interest rate, you may move before it ever adjusts. In a perfect world, you’ll take an ARM with a fixed (introductory) rate for the time you’ll be in the home. For example, let’s say that you know you’ll move in four years. If you choose a 5/1 ARM, you have that extra year as a buffer, as your rate remains fixed for 5 years. You get to take advantage of a lower interest rate and you dodge increasing interest rates down the road.
What’s Your Income Like?
Do you have variable income or are you paid on a salary? If you have predictable income, you can choose either type of loan that you are comfortable paying. If you don’t mind the uncertainty of the ARM loan as the rate adjusts, you can take advantage of the initial savings. You always have the option to refinance out of the ARM before it adjusts if you decide that’s what you want to do too.
If you have variable income, though, you may not want to take a chance on the changing interest rate. What if you can’t afford the higher payment when the rate adjusts? With a fixed rate, you know what the payment is from the moment you sign the closing papers. You also know that you qualify for that payment because the lender must make sure you can afford it beyond a reasonable doubt before giving you the loan.
What are Your Job Prospects?
Your final consideration is your job prospects. For example, are you in an intern position now or at a starting point in your career, but will have a major jump in income/job status within the next couple of years? This is most common for doctors and lawyers, but other employment opportunities offer the chance to increase your income sometimes two or three times what you start at after a specific period.
If you have this type of job, an ARM might be a good choice. You get the lower payment during the introductory period, which should coincide with your ‘starting salary.’ Once your income increase, you’ll be ready and able to handle the adjusting interest rate. If not, you will be in a better position to refinance with your higher salary in place.
As a veteran, you have the option between a fixed rate and adjustable rate loan. Make sure you weigh the pros and cons of each loan type to decide which one is right for you. Ask for actual figures and see how they fit into your budget so that you can choose the loan that suits you the best.Click to See the Latest Mortgage Rates»