Getting a VA home loan or paying a VA loan off early is a big financial step.
Here’s what you need to know about a VA loan prepayment penalty:
There is no VA loan prepayment penalty. You can pay off a VA loan without any financial consequences. You will not be charged additional fees for early payment. You can pay more than your loan bill each month or pay off your VA loan in one lump sum.
In this article, we’ll take a look at the most common questions about a VA loan payment penalty.
What Is a VA Loan Prepayment Penalty?
When you take out a loan, the lender typically charges you interest on the borrowed amount.
This is how they make their money.
But what happens if you want to pay off your loan early? That’s where a loan prepayment penalty comes in.
A VA loan prepayment penalty is (or would be) a fee that lenders charge if you repay your loan before the end of the agreed-upon term.
So, if you have a five-year loan and you pay it off in three years, you may be charged a penalty.
The purpose of this fee is to deter borrowers from prepaying their loans and to keep the lender’s interest payments coming in on schedule.
Loan prepayment penalties can vary widely.
Some lenders may charge a flat fee, while others will charge a percentage of the outstanding balance.
Now that you know the basics of a prepayment penalty, does the VA even have one?
Is There a VA Loan Prepayment Penalty?
There is no VA loan prepayment penalty.
The VA does not have a VA loan prepayment penalty.
This “rule” protects service members from being charged a penalty for paying off a loan early. That means if you have a VA-backed loan, you’re free to make additional payments or even pay off your loan in full without having to worry about being penalized.
There are some misconceptions out there about VA loans and prepayment penalties.
Some think that because the VA guarantees a portion of every loan, lenders are super freaked out about borrowers ditching their loans early and leaving them holding the bag.
Or that the Veterans Affairs imposes penalties on prepaying in order to keep veterans “trapped” in their home loans (to generate revenue for the agency).
Neither of these is true.
Here is a good video that debunks the myth about VA loan prepayment penalties:
Why Is There No VA Loan Prepayment Penalty?
The VA actually encourages borrowers to prepay their loans, as doing so can save them money in the long run.
There are a few reasons for this.
First, interest charges are typically lower on VA loans than on other types of loans. This means that borrowers who prepay their loans will save money on interest charges.
Additionally, prepaying a loan can help to improve one’s credit score.
When a borrower pays off a loan ahead of schedule, it shows lenders that they are responsible and capable of repaying their debts.
As a result, prepaying a VA loan can provide a number of benefits for borrowers.
Has There Ever Been a Prepayment Penalty for a VA Loan?
Since the VA first began offering home loans to military personnel and their families back in 1944, they have never charged a prepayment penalty.
This is just one example of how the VA is an institution that is truly for the service members and their families.
While the VA is not a perfect organization, its mission is to serve the military personnel as the service member serves the country.
The VA has a long history of helping service members buy homes (among other things), and they continue to offer competitive loan terms today.
If you are considering a VA loan, be sure to ask about all of the benefits for which you may be eligible.
The VA is here to help you achieve your homeownership goals, and they will work with you to find the best loan option for your needs.
Why There Will Never Be a Prepayment Penalty for a VA Loan
There’s always been a lot of talk about whether or not the VA will institute a prepayment penalty on VA Loans.
Right now, there is no penalty for prepaying your VA Loan, and there’s no indication that the VA is considering changing that policy.
However, some have speculated that the VA might start charging a prepayment penalty in the future.
It’s impossible to predict the future, but given the long history of no penalities, we can safely bet that there will be no VA loan prepayment penalty anytime soon.
The VA has always been focused on helping veterans and their families attain homeownership, and a prepayment penalty would run counter to that mission. Furthermore, there are already plenty of other loans out there that charge a prepayment penalty, so veterans would simply switch to another type of loan if the VA started charging one.
In short, don’t worry about a VA loan prepayment penalty.
It’s unlikely that the VA will ever institute one.
Who Do I Contact To Learn More About VA Loan Prepayment?
That would be the Va Home Loan Center.
Here is a simple chart with the numbers you need to get the answers you deserve about your VA loan:
| VA Center Department | Phone Number |
| VA Loan Prepayment | 1-877-827-3702 |
| VA Home Loan Eligbility Center | 1-877-827-3702 |
| VA Home Loan Refinancing | 1-877-827-3702 |
| VA Benefits Hotline | 800-827-1000 |
| VA411 Main Info Hotline | 800-698-2411 |
Here are some other ways to contact the VA about your loan prepayment:
FAQs About VA Loan Prepayment
Whether you’re a first-time homebuyer or a veteran homebuyer, there’s a lot to know about VA loans.
Here are quick answers to some of the most common frequently asked questions about VA loan prepayment penalties.
Can You Pay Extra on a VA Loan?
The answer is yes.
You can make extra payments on your VA loan with no penalties or restrictions.
When you have a VA loan, you have the option to make bi-weekly payments instead of monthly payments. Bi-weekly payments are simply half of your monthly payment, made every two weeks.
This can be a great way to save money on interest and pay off your loan more quickly. But what if you want to go even further and make an extra payment each month?
With a VA loan, you can make as many additional principal payments as you want, without any extra fees.
Can a VA Home Loan Be Paid Off Early?
Yes, you can pay off a VA home loan anytime you want.
If you have the cash on hand, you could pay your VA home loan off in the first year – or any year thereafter.
Do You Pay Any Fees With a VA Loan?
You may have to pay a one-time charge called the VA funding fee.
Ultimately, this lowers the total amount of money you pay for your loan, so it’s really to your benefit.
While this is an extra fee it pales in comparison to the prepayment penalty for most other non-VA home loans. You still end up saving a bunch of money.
What Are the Benefits of a VA Loan Prepayment?
There are many benefits of a VA loan prepayment.
The big picture is that the VA allows lenders to offer qualified borrowers competitive interest rates and terms. When you prepay your VA loan, you save money.
Prepayment stacks savings upon the savings you get when you used the loan in the first place.
One of the major benefits of the VA home loan program is that borrowers can purchase a home with no down payment. In most cases, conventional mortgages require a minimum down payment of 5-10 percent of the purchase price.
For a $200,000 home, that would be a down payment of $20,000.
Borrowers who are unable to make a traditional down payment may still be able to qualify for a VA loan.
Another benefit of VA loans is that they typically have lower closing costs than other mortgage products. Closing costs can include fees charged by the lender, third-party services such as appraisers and title insurance, and other miscellaneous expenses.
Borrowers who are eligible for a VA loan may be able to have some or all of their closing costs covered by the VA.
With all of these benefits and no prepayment penalty, you can see why service members choose VA loans and pay them off early as much as they can.
Final Thoughts: VA Loan Prepayment Penalty
Thanks for your service, and don’t forget to ask about a VA loan when you’re ready to buy a home.
We have a ton of other articles on this site about money, finance, debt, and budgeting.
Check out a few of our other articles before you go.
Sources
AnswerBeach is not a registered financial advisor, investment broker, or dealer. See full financial disclaimer.