When you borrow money for a home, such as with a VA loan, your lender will charge an interest rate. That interest rate is the "cost" to borrow the money.
The good news for Veterans and military members is that due to the VA loan rates are often lower than other mortgage products, including conventional loans.
Lenders often post their rates online. However, those rates may not be specific to your financial situation. The best way to get an accurate idea of your VA loan rate is to get preapproved with a lender. This typically involves a credit check and an initial assessment of your income, assets and debts.
VA loans come in both fixed- and adjustable-rate mortgages (ARM).
ARMs can be beneficial for some Veterans, especially those only planning to stay in a home for a short time. However, do your homework or coordinate with a trusted lender to determine what mortgage type is best for you. Adjustable-rate mortgages come with risks that fixed-rate mortgages don’t, and everyone’s situation is different.
The interest rate on your VA loan is the percentage the lender charges for borrowing the money. Annual Percentage Rate (APR) is a more accurate representation of the cost of borrowing because it includes lender fees and discount points along with the interest rate.
APR is a valuable tool when comparing multiple loan offers. Multiple lenders can have the same mortgage rate but different APR based on their fees.
VA buyers can choose whether to spend extra money up front to essentially buy a lower interest rate. You do this by what’s known as paying points, where 1 point is equal to 1 percent of the loan amount.
Paying points to lower a rate isn’t something most Veterans do, but it is an option. You can typically pay up to 2 points to lower your rate.
Typically the borrower pays for the discount points, but the seller can also pay these as part of the transaction. The VA allows sellers to pay up to 4 percent of the loan amount towards things like discount points and closing costs.
However, sellers paying your discount points aren't a given. It's all a negotiation, and if the market is hot, try not to bank on a seller paying.
It's entirely dependent on the borrower's financial situation and expected time to live in the home.
From a positive standpoint, you're getting a lower rate forever. However, you'll need to stay in that home long enough to recoup the investment.
