Though VA home loans are reserved for active servicemembers and military veterans who meet specific criteria, the truth is that, for the most part, these loans are much like traditional mortgages in many ways. Below, you can learn more about how paying a little extra on your mortgage each month can help you pay it off much faster and perhaps even save you thousands of dollars in the process.
When you make a mortgage payment every month, that money goes toward two different things.
When you pay a little more on your mortgage each month, you get to reap two benefits. First, you’ll be drastically shaving time off the loan’s term. Thanks to the VA’s rules, they forbid your lender from penalizing you for paying off your mortgage early, so there’s even more incentive to pay more if you can. Second, you’ll be able to save thousands of dollars over the course of your mortgage, and that’s money you can put into your kids’ college funds or a retirement account where it can draw interest and serve you well later in life.
Assume that you buy a home for $200,000 at an interest rate of 3.5% and a term of 30 years. If you pay just $50 more each month, you can shave a little more than two and a half years off your loan term, and you can save a tremendous $12,356, too. If you can manage to pay an extra $250 a month, this is where the savings really start to stack up. You can not only shave almost 10 years off your mortgage term, but you can save nearly $45,000 over the course of the remaining 20 years in interest. It really is beneficial.
Some of the best ways to reap these benefits include not only paying a little more on your mortgage every month, but also making lump-sum payments when you can – or doing a mix of both. For example, if you get a surprise tax refund, you could put those funds toward the principal of your mortgage to shorten the term and save money. The same thing applies if you get a pay raise, a bonus, or even an inheritance. Your home really is an investment, so it’s always a good idea to pay a little more. However, if you have other, more expensive debt – a high-interest auto loan or credit card debt, for example – consider paying these off first.
At the end of the day, paying a little more on your VA home loan every month can make a huge difference in the amount you spend on your home – and the length of time you spend paying for it, too. Paying even $50 more a month can save you more than $12,000 on a standard $200,000 30-year fixed loan, so it only makes sense to do it when you can.