Tips & Special Topics
VA Rates- How Fed Rate Changes Impact VA Loan Rates
Added August 18, 2008
The Veteran’s Administration is dedicated to helping former and active military, reservists, and National Guard personnel who qualify to obtain home loans. The VA home loan guaranty program does not lend money; rather, it guarantees a mortgage up to a maximum amount and provides confidence to a lender about lending money to qualified veterans. But do VA home loans provide the best interest rates? And how is an interest rate decided?
Understanding VA loans and interest rates
Interest rates for home loans are set by lenders usually on a daily or weekly basis. The rates defined by lenders are not directly connected to changes in the “Discount Rate,” which is the interest rate the Federal Reserve Banks charge depository institutions on overnight loans. Mortgage rates are determined by the market rather than by the Federal government. Lenders take into account their long-term expectations for future inflation when setting their mortgage rates and pricing. Historically speaking, the Discount Rate and mortgage rates have tended to move together, although they have followed different paths from time to time.
VA home loan mortgage interest rates are often lower than conventional home loan rates. Approved VA lenders have the safety and guaranty of the US government on a portion of a VA home loan, and lessened risk for the lender can often mean lower interest rates to veterans who qualify.
Take advantage of a VA streamline refinance when rates decrease
If a qualified veteran has obtained a VA home loan in order to purchase a home and then later the interest rates decrease, is it possible to take advantage of the lower rates? There is a program set up just for that purpose. The VA home loan refinance has a streamline option which makes refinancing an existing VA home loan quick and easy.
The VA streamline refinance (also known as the interest rate reduction loan or IRRL), allows a VA loan holder to reduce their interest rate by refinancing without having to undergo many of the usual qualifying processes. A VA streamline refinance allows existing VA home loan customers to obtain a lower interest rate on a home loan without the lengthy documentation process needed for full refinances and new mortgages. Appraisals, credit score verification, income verification, and employment verification are usually not necessary through the streamline program. The VA streamline refinance is a great option for veterans who wish to take advantage of lower interest rates to reduce their monthly mortgage costs.
Qualified veterans can take advantage of favorable interest rates by obtaining a VA home loan. Whether it is for a new home purchase or a refinance of an existing mortgage, lenders can offer competitive rates to VA home loan borrowers. Veterans wishing to purchase a home should pay close attention to the rates being offered by VA lenders, and to the costs associated with those rates, in order to obtain the best overall VA loan for their situation.
