Historically Low VA Rates
Historically Low VA Rates
What Does "Historically Low" Really Mean?Mortgage rates do not stay in one place. They rise, fall, sometimes move rapidly, and occasionally reach levels that are extraordinary compared with decades of mortgage history. Understanding those cycles can help Veterans recognize when a meaningful opportunity appears.
VA does not establish one interest rate that every Veteran receives.
VA-backed mortgages are made by private lenders, and those lenders determine the interest rates, discount points, lender credits, and other pricing they make available.
Mortgage pricing changes with the financial markets and can differ substantially from lender to lender.
That means there is no single "VA rate."
When someone says VA rates are historically low, the real question is how today's available VA pricing compares with the mortgage-rate environment over many years or decades.
During an extraordinary low-rate mortgage environment, VA Help Center completed multiple VA transactions with 1.25% note rates using approximately two discount points.
These transactions occurred during exceptional market conditions and should not be interpreted to mean that 1.25% pricing is currently available or that mortgage rates will necessarily return to that level.
The APR illustration above uses the following representative assumptions so the historical note rate can be shown together with a reasonable APR example:
The representative APR calculation assumes approximately $1,000 of additional APR-included finance charges in addition to the two discount points.
On those assumptions, the estimated principal-and-interest payment at 1.25% for a $400,000 30-year mortgage would be approximately:
$1,333 PER MONTH
before property taxes, homeowners insurance, HOA charges, and other amounts that may apply.
A Veteran qualifying for a VA funding-fee exemption would have a $0 VA funding fee.
Title, escrow, recording, prepaid taxes, insurance, and other settlement expenses may still apply. Bona fide and reasonable real-estate-related charges are not necessarily included in the Regulation Z APR calculation.
The 1.412% APR shown here is a representative calculation based on the assumptions above. It is not being represented as the exact APR appearing on every historical 1.25% transaction.
A 1.25% mortgage rate is not a normal mortgage environment.
It required an unusual combination of extremely low market yields, strong mortgage-bond pricing, lender competition, and additional discount points used to obtain an even lower note rate.
During the historic low-rate period, broad mortgage rates fell to levels the United States had never previously experienced.
VA pricing could be particularly competitive during that environment.
Borrowers who chose to pay additional discount points could sometimes move still farther down a lender's available rate sheet.
In the historical VA Help Center transactions discussed above, approximately two discount points were used to obtain the 1.25% note rate.
What Do Two Discount Points Mean?
One discount point generally equals 1% of the mortgage amount.
On a $400,000 mortgage:
1 point = $4,000
and:
2 points = $8,000
Discount points are paid to obtain lower interest-rate pricing.
One point does not automatically reduce the rate by any fixed amount. The rate improvement provided by points depends on the lender's pricing and the mortgage market at that time.
Some eligible Veterans and other qualifying borrowers are exempt from the VA funding fee.
For a borrower qualifying for that exemption:
the VA funding fee is 0%.
That can reduce either the amount of money required at closing or the amount that otherwise might have been financed into the mortgage.
Funding-fee status must be verified for the individual borrower.
How Much Have Mortgage Rates Changed Historically?
The Freddie Mac Numbers Are Not VA Help Center Rates or VA-Specific Rate Averages
Freddie Mac's Primary Mortgage Market Survey is used here to show the broader U.S. mortgage-rate environment.
It is not a VA-specific rate survey and should not be interpreted as the interest rate available on an individual VA mortgage.
VA rates can differ from conventional mortgage benchmarks and can vary by lender, borrower, loan structure, discount points, and market conditions.
A mortgage rate around 7% can feel extremely high to someone who bought or refinanced during the extraordinary 2020-2021 period.
But a rate around 7% would have appeared very low compared with the double-digit mortgage rates experienced during portions of earlier decades.
Mortgage rates move in cycles. They do not simply move in one direction forever.
What Can Make Mortgage Rates Go Down?
What Can Make Mortgage Rates Go Up?
The Federal Reserve sets monetary policy and influences short-term interest rates and broader financial conditions.
But a 30-year mortgage is a long-term financial instrument.
Mortgage investors are constantly looking forward.
They consider:
- Inflation expectations
- Economic growth
- Employment data
- Expected future Federal Reserve policy
- Treasury yields
- Mortgage-backed security pricing
That is why mortgage rates can fall before an expected Federal Reserve rate cut - or even rise after the Federal Reserve cuts its short-term policy rate.
The COVID-19 pandemic created an extraordinary economic and financial-market environment.
In March 2020, the Federal Reserve reduced its federal funds target range to near zero.
The Federal Reserve also began very large purchases of Treasury securities and agency mortgage-backed securities to support market functioning and the flow of credit.
Those actions occurred alongside extremely low Treasury yields and extraordinary demand throughout fixed-income markets.
The broader mortgage market eventually reached levels never previously recorded in Freddie Mac's survey.
Freddie Mac's national 30-year fixed benchmark reached a record low of 2.65% in January 2021.
During those extraordinary market conditions, some VA borrowers could obtain even lower transaction-specific pricing depending on lender pricing and discount points.
Extraordinary low-rate environments do not necessarily last.
Inflation accelerated sharply following the pandemic.
Monetary policy became substantially more restrictive, Treasury yields increased, and yields on agency mortgage-backed securities rose.
Mortgage-backed security spreads over comparable Treasury securities also widened.
Those forces helped move mortgage rates dramatically higher from the extraordinary lows reached during 2020 and 2021.
Why Can VA Mortgage Pricing Be So Competitive?
VA guarantees a portion of an eligible mortgage made by an approved private lender.
That guaranty reduces some of the lender and investor credit risk associated with the mortgage.
VA loans can therefore offer very competitive mortgage pricing in some circumstances.
But there is no rule requiring every VA loan to be a specific amount below a conventional mortgage rate.
Actual pricing still depends on the mortgage market, lender, borrower, loan structure, points, lender credits, and other factors.
Using the simplified 30-year example above:
A $400,000 mortgage at 1.25% has principal and interest of approximately:
$1,333 PER MONTH
At 7%, the principal-and-interest payment is approximately:
$2,661 PER MONTH
That is a difference of approximately:
$1,328 PER MONTH
or almost:
$15,936 PER YEAR
before considering differences in closing costs, discount points, loan balances, or other expenses.
A borrower should never compare mortgage offers by looking only at the interest-rate percentage.
A very low note rate can require substantial discount points.
A slightly higher rate may have very little upfront cost.
Compare:
- Interest rate
- APR
- Discount points
- Origination charges
- Lender credits
- Monthly payment
- Cash to close
- Loan balance
- Loan term
- How long you expect to keep the mortgage
Historically low interest rates can create tremendous opportunities, but the complete economics of the mortgage still matter.
Do Not Wait for 1.25% Simply Because It Happened Before
A historical low does not become a promise about the future.
The economic and monetary conditions that produced the extraordinary mortgage market of 2020 and 2021 were unusual.
Rates can fall again.
They could potentially fall substantially.
But nobody can know in advance whether mortgage rates will return to a particular historic level.
Make today's mortgage decision using today's available numbers. Treat the possibility of a future refinance as an opportunity - not a guarantee.
Mortgage lenders receive changing pricing as Treasury and mortgage-backed security markets move.
Major inflation reports, employment data, economic reports, Federal Reserve announcements, Treasury-market moves, or unexpected events can result in lender repricing.
A mortgage rate available this morning is not necessarily guaranteed to remain available this afternoon unless it has been properly locked.
A Rate Quote and a Rate Lock Are Different
A quote generally reflects pricing available at a particular moment.
A rate lock generally protects specified mortgage pricing for a defined period, subject to the lender's lock agreement and the transaction remaining eligible.
When evaluating a lock, ask about the lock period, expiration date, extension costs, and what options may exist if mortgage rates move substantially before closing.
What Can a Veteran Do When Rates Fall?
The exact bottom of a mortgage-rate cycle is usually obvious only after it has passed.
Waiting for another one-eighth or one-quarter percentage point can sometimes cause a borrower to miss a larger opportunity if the market suddenly reverses.
Instead of asking:
"Is this the lowest rate the market will ever reach?"
ask:
"Does the mortgage available today improve my financial situation enough to make acting worthwhile?"
The note rate is the interest percentage applied to the unpaid mortgage balance.
APR is a broader annualized measure that incorporates the interest rate and certain finance charges associated with obtaining the mortgage.
Discount points are generally part of that calculation.
Some bona fide and reasonable real-estate-related costs - such as certain title, appraisal, recording, and escrow-related items - may be excluded from the Regulation Z finance charge depending on the specific charge and circumstances.
That is why the historical 1.25% example on this page is accompanied by a representative APR calculation instead of showing the note rate by itself.
Different mortgage lenders can react differently to the same market.
One lender may have better pricing at one rate while another lender may have better pricing at a different rate.
One lender may improve lender credits.
Another may improve discount-point pricing.
VA Help Center can compare available pricing among the approved wholesale lenders in our network instead of assuming one lender's rate sheet represents the entire VA mortgage market.
What Should You Do When You Hear Mortgage Rates Are Falling?
VA Help Center has worked through dramatically different mortgage-rate environments.
We have seen periods when mortgage rates were much higher.
We have also helped close VA transactions during extraordinary periods when note rates reached levels as low as 1.25% with discount points.
Nobody can promise when the next major rate decline will happen or how low mortgage rates will go.
What we can do is evaluate the market when rates move and show you what the numbers mean for your actual mortgage.
Historically Low VA Rate FAQs
What does "historically low VA rates" mean?
It generally means the VA mortgage pricing available during a particular period is unusually low when compared with a much longer period of mortgage history. VA does not establish one interest rate for all VA borrowers.
Has VA Help Center really closed VA loans at 1.25%?
VA Help Center has completed multiple historical VA transactions with note rates as low as 1.25% during extraordinary low-rate market conditions. Those transactions involved approximately two discount points. Historical results are not current offers and do not indicate that similar pricing is presently available.
What APR are you using with the historical 1.25% example?
The representative illustration on this page uses a 1.25% note rate and approximately 1.412% APR based on a hypothetical $400,000 30-year fixed mortgage, two discount points totaling $8,000, approximately $1,000 of additional APR-included finance charges, and no VA funding fee because the borrower is assumed to qualify for a funding-fee exemption. The actual APR on a historical loan would depend on its actual loan amount, term, finance charges, prepaid interest, and closing details.
Why are title and escrow costs not all included in the example APR?
Regulation Z does not treat every settlement charge as a finance charge. Certain bona fide and reasonable real-estate-related charges can be excluded from the finance charge used to calculate APR. Treatment depends on the specific charge and transaction.
What are two discount points?
One discount point generally equals 1% of the loan amount. On a $400,000 mortgage, two points equal $8,000. Discount points are paid for lower interest-rate pricing, but two points do not correspond to one predetermined amount of rate reduction.
Why would a Veteran have no VA funding fee?
VA provides funding-fee exemptions for certain eligible borrowers, including many Veterans receiving qualifying compensation for a service-connected disability and certain other eligible borrowers. Funding-fee status must be verified for the specific transaction.
Does VA set my mortgage interest rate?
No. Private lenders determine and negotiate the interest rate, discount points, lender credits, and most other mortgage pricing. Those terms can vary between lenders.
What was the lowest broad-market mortgage rate in Freddie Mac's history?
Freddie Mac reports that its national 30-year fixed mortgage benchmark reached a record weekly low of 2.65% in January 2021. This was a conventional broad-market benchmark and not a VA-specific interest rate.
How high have mortgage rates been historically?
Freddie Mac reports that its national 30-year fixed mortgage benchmark reached 18.63% in 1981.
Why were mortgage rates so low in 2020 and 2021?
The pandemic created an extraordinary economic and financial-market environment. The Federal Reserve reduced short-term rates to near zero and purchased large quantities of Treasury securities and agency mortgage-backed securities, while long-term market yields also fell dramatically.
Why did rates increase after the historic lows?
Inflation increased significantly, monetary policy tightened, Treasury yields increased, and yields and spreads on mortgage-backed securities moved higher. Those factors contributed to substantially higher mortgage rates.
If the Federal Reserve cuts rates, will mortgage rates immediately fall?
Not necessarily. Mortgage rates are longer-term market rates and can move based on expectations before the Federal Reserve acts. Inflation, Treasury yields, mortgage-backed securities, and other market conditions also matter.
Can VA mortgage rates be lower than conventional rates?
They can be in some borrower and market circumstances. VA's guaranty can support competitive mortgage pricing, but there is no rule that every VA rate must always be lower than every conventional rate.
Can mortgage rates change during the same day?
Yes. Lenders may reprice when Treasury and mortgage-backed security markets move. A quoted rate is not necessarily protected until an applicable rate lock is completed.
Should I wait until VA rates return to 1.25%?
There is no guarantee they ever will. The 1.25% transactions described on this page occurred during extraordinary historical market conditions and involved discount points. A better approach is to determine whether the mortgage available today provides enough benefit for your financial goals.
Why can two VA lenders quote different rates?
Private lenders establish their own mortgage pricing, margins, discount-point structures, lender credits, lock policies, and other terms. VA does not require approved lenders to offer identical pricing.
Is the lowest note rate always the best mortgage?
No. A lower interest rate can require significantly more discount points or upfront costs. Compare the interest rate, APR, points, lender credits, closing costs, payment, and the length of time you expect to keep the mortgage.
What should I do if rates fall after I already have a VA mortgage?
Ask whether a VA Streamline / IRRRL provides a qualifying financial benefit. Compare the new rate, APR, payment, costs, loan balance, recoupment period, and loan term before refinancing.
Wondering Whether VA Rates Have Fallen Enough for You?
VA Help Center can compare your existing mortgage with the VA pricing available through our approved lender network. We can show you the estimated rate, APR, payment, discount points, lender credits, costs, and potential financial benefit before you decide whether to act.
CHECK MY VA RATE OPTIONS Call 801-871-3739VA Help Center, LLC is a private mortgage company and is not affiliated with, endorsed by, or acting on behalf of the U.S. Department of Veterans Affairs or any other government agency.
VA does not prescribe the interest rate on ordinary VA-guaranteed mortgages. Interest rates, APRs, discount points, lender credits, closing costs, rate-lock terms, and other pricing vary by lender, borrower, transaction, and market conditions.
The historical 1.25% note-rate information on this page describes prior VA Help Center transaction experience during extraordinary historical market conditions. It is not a current rate offer, representation of current pricing, commitment to lend, or indication that similar pricing is presently available or will become available again.
The representative 1.412% APR illustration assumes a $400,000 30-year fixed-rate mortgage at a 1.25% note rate, two discount points equal to $8,000, approximately $1,000 of additional APR-included finance charges, and a $0 VA funding fee due to an assumed qualifying funding-fee exemption. Actual historical APRs varied according to the actual loan amount, term, finance charges, prepaid interest, closing date, and other transaction details.
Certain bona fide and reasonable real-estate-related charges may be excluded from the Regulation Z finance charge used to calculate APR. Title, escrow, recording, appraisal, taxes, insurance, prepaid items, and other settlement expenses may nevertheless be payable as part of the transaction.
Freddie Mac historical mortgage-rate information on this page is presented solely to illustrate the broader U.S. mortgage-rate environment. Freddie Mac's Primary Mortgage Market Survey is not a VA-specific rate survey and does not represent VA Help Center pricing.
Numerical payment examples are hypothetical educational illustrations. They generally assume a fully amortizing 30-year mortgage and exclude property taxes, homeowners insurance, HOA obligations, funding fees, closing costs, and other amounts unless specifically stated.
Mortgage rates and lender pricing can change without notice and may change during the same day. A quoted mortgage rate is not necessarily protected until an applicable rate lock has been completed according to the lender's requirements.
Discount points generally involve an upfront cost paid to obtain lower interest-rate pricing. The amount of rate reduction obtained from any number of discount points varies with the lender and market and is not fixed.
No mortgage broker, lender, or loan program is guaranteed to provide the lowest available interest rate or lowest overall cost in every transaction.
Mortgage approval remains subject to applicable VA requirements, lender underwriting, borrower qualification, property eligibility, loan terms, and applicable law.