Interest Only VA Loans

interest only va loansVA Home Loan Centers does not recommend, nor guarantee interest only mortgages.

Interest only loans are shorter term adjustable rate mortgages where a borrower is not required to make payment on the principal loan amount. An amortized loan calls for the mortgage holder to make payments for both the interest and the principal every payment period. Because the borrower is not required to pay the principal with interest only mortgages, the ARM will usually reset, and the borrower will suffer from payment adjustment shock. Unfortunately this often results in a foreclosure because the borrower is not prepared for a major increase in monthly expenses.

The advantages of an interest only loan include:

  • The ability to purchase a higher priced home with lower monthly payments
  • Reduced monthly obligations
  • More financial freedom resulting from the freeing up of money that would normally be spent on the monthly loan payment

The cons of this type of loan encompass:

  • If the property drops in value an out of pocket payment may be required to sell it
  • Equity is not built, this is important if you wish to acquire a second mortgage in the future
  • Even with lower monthly payments, the full mortgage amount will still need to be paid at some point. Only paying the interest every month results in the borrower treading water instead of working towards outright ownership

If you have been given an adjustable rate mortgage (ARM) and were unable to make your payment, you may qualify for free VA loan modification assistance.

If VA is not able to help a veteran borrower retain his/her home (whether a VA-guaranteed loan or not), the HOPE NOW Alliance may be of assistance. HOPE NOW is a joint alliance consisting of servicers, counselors, and investors whose main goal is to assist distressed borrowers retain their homes and avoid foreclosure. They have expertise in financial counseling, as well as programs that take advantage of relief measures that VA cannot. HOPE Now provides outreach, counseling and assistance to homeowners who have the willingness and ability to keep their homes, but are facing financial difficulty as a result of the crisis in the mortgage market. The HOPE NOW Alliance can be reached at (888) 995-HOPE (4673), or by visiting

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