When you decide to use a VA Loan, you may be excited about the prospect…
Yes, you will need to pay back your VA Loan. Just like any home mortgage, you will need to make monthly payments to your lender. These include principal, interest, taxes, and insurance.
The principal amount goes toward the outstanding balance of the loan. The interest is calculated based on the term of the loan, often 15 or 30 years, and the interest rate that you received when your loan was finalized. Taxes can vary year by year. Insurance tends to remain stable but can also vary.
When you pay back your VA Loan, the first few payments are typically weighted heavily toward the interest payment. This means that the majority of your payment amount is going toward interest and little is going toward your principal amount, taxes, and insurance. As your mortgage progresses, more goes towards principal and less toward interest.
Taxes and insurance are calculated each year and placed in escrow. Your mortgage company will then pay the bills when they come on your behalf. If they see that they don’t have enough, known as a deficit, they will increase your mortgage slightly the following year to account for this adjustment. If they have too much, you may get a check back annually.
You can make extra payments toward principal on your VA Loan. This will cut down the life of the loan and the amount of interest that you will pay. If you do this routinely, you can pay back your VA Loan much faster and save quite a bit of money. There is not a penalty for paying off a VA Loan early.
If you decide that you want to refinance into a conventional loan, you can do that as long as you have at least 20% equity in your home. This can free up your VA Loan entitlement to use for a future home purchase.