Prepay VA Loan and Save: No VA Loan Early Payoff Penalty

By Right Start Mortgage
October 14, 2022

If you have a VA loan, you already enjoy perks, including competitive interest rates and zero down-payment options. But what if we told you there were additional bonuses available—including a shorter loan term with reduced interest payments—to those who pay off their VA loan early?

While this option may initially seem out of reach, remember that you don’t have to pay off your entire loan all at once. Instead, many homeowners simply choose to make one additional payment each year or pay a little extra each month.

Regardless of the prepayment path, here are a few additional benefits to prepay your VA loan.

No Prepayment Penalty

Conventional lenders typically charge a prepayment penalty, which means you’re actually “punished” for paying off your loan early.

The good news is the U.S. Department of Veterans Affairs prohibits lenders from enforcing a VA loan early payoff penalty.

Pay Less Interest

If you choose a traditional 15- or 30-year fixed-rate VA loan, you’ll pay thousands of dollars in interest over the loan's lifespan. The upside is you can reduce that amount by paying a little extra each month toward your VA loan. The savings can really add up over time.

Peace of Mind

If you’re like most Americans and spending around 20 percent or more of your monthly income on housing, freeing up that money by owning your home free and clear earlier than planned offers peace of mind. When you reduce your term and pay off your loan early, you’ll have extra money each month. It’s a great incentive to prepay your VA loan.

When You Shouldn’t Pay Off Your VA Loan Early

If there’s a downside to prepaying your VA loan, it’s that you forgo investment opportunities that might outpace your mortgage interest rates.

For example, there’s no reason to pay off a 5 percent mortgage when you could earn 7 percent by investing your money elsewhere. Then again, your fixed-rate mortgage is set in stone. Other returns are rarely guaranteed.

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