VA Loan Articles

Types of VA Loan Repayment Plans

When applying for a VA loan, there are a variety of repayment plans to choose from. If you haven't thought of how you'd like to repay your VA home mortgage loan, now is a good time to stop and consider your options. There are five basic types of VA loan options:

• Traditional fixed payment


• Graduated payment mortgage


• Growing equity mortgage


• Traditional ARM loan


• Hybrid ARM

The traditional fixed payment loan features a specific interest rate which is fixed and does not change. This is great for stable, predictable VA home loan payments over the lifetime of the loan. If you choose a graduated payment VA loan, you get lower payments at the beginning of the loan. Those payments gradually go up over time but level off in the sixth year of the loan and remain stable afterwards. This option is good for first time home buyers who need some extra financial leeway in the early days of the mortgage payment, or for those who anticipate raises or promotions in the near future.

A growing equity mortgage offers a different type of advantage. On this type of repayment plan your VA loan mortgage payments increase gradually over time, but all the increases are applied to the principal of the loan which can help you pay it off early. Early payoff means savings in interest rate payments, a definite advantage for the long-term financial planner.

For some, adjustable rate mortgages or ARMs are the way to go, but as recent housing market woes demonstrate, it's very important to plan carefully when getting into an adjustable rate mortgage of any kind. These mortgages are best for those who plan ahead and are thinking of refinancing the home at some stage using the VA Streamline refinance loan option or another program where the terms can be renegotiated. Traditional ARMS do have an advantage over commercial ARM loans. Traditional VA ARM loans are adjusted annually and the adjustments are limited to a one percent increase per adjustment with a maximum of 5 percentage points adjusted over the lifetime of the loan.

Hybrid ARM loans are offered with a fixed interest rate for at least three years, but the first adjustment can be as high as two percentage points if the fixed rate is locked in for five years or longer. Like traditional VA ARM loans, the cap is five percent over the lifetime of the loan.

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