A mortgage can cost you thousands of dollars in interest and the VA loan is no exception. Even though VA loans often have lower interest rates, any amount of interest adds up over the course of thirty years. Luckily, there are simple ways to reduce that expense including the chance to pay off your VA loan early.
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The VA loan
does not have a penalty for borrowers that pay the loan off early. This is good news for veterans with a plan to pay their loan down or off completely before the term ends. There are several ways you can make this reality for you too.
Pay One Lump Sum
If you have the money from an inheritance or other even just your savings, you can pay the loan off in one payment. The VA doesn’t have any requirements regarding how much you can pay when. As long as you make your minimum required payments every month, you are free to make lump sum payments whenever you see fit to do so.
Paying your loan off in full will release you from the obligation of making your monthly mortgage payments. You now own the home free and clear and can do it with it as you see fit. You should know though, that if you pay the loan off but keep the home, your VA entitlement stays with the home. The VA requires you to pay the loan off and sell the home in order to
restore your entitlement.
Make Regular Extra Payments
Some borrowers set out to pay off their VA loan early from the start. Rather than making the required payment each month, they make an extra payment that goes directly towards the principal. For example, if you send in an extra $100 each month and state that it should go towards the principal, you knock the balance down $1,200 a year. This will save you more money on interest in the long run and help you pay the principal off faster.
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The amount you pay on a regular basis is completely up to you and optional. You can make the extra payments as you can afford them, taking time off whenever necessary. There isn’t a penalty if you don’t make the
extra payments at any time.
Make One Extra Full Mortgage Payment
Another strategy many borrowers use is to pay one extra mortgage payment each year. You can do this in one of two ways:
Make an extra payment once per year – This situation works best if you receive a tax refund or bonus at work. You can make an extra mortgage payment at any time during the year, knocking off several years off your loan in the end with regular use of this technique.
Pay 1/12th of the payment each month – If you can’t afford a lump sum payment, you can divide your mortgage payment by 12 and pay that extra amount each month. At the end of the year you’ll have made one extra full mortgage payment.
Make biweekly payments – If you divide your mortgage payment in half and pay that amount every two weeks, you’ll automatically make an extra payment at the end of the year because there are 52 weeks in a year, which results in 26 biweekly payments or 13 annual payments.
No matter how you decide to make your extra payments, the good news is that there isn’t a penalty if you pay off your mortgage early. Whether you can pay only a few extra dollars at first or you can make a large lump sum payment, every dollar counts and helps to save you interest in the long run.
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