When bond prices soar and yields plummet, interest rates fall. These are typical signs of a recession. At the start of 2009, mortgage rates were at an historic low – the lowest they’ve been since 1971. But, have we seen the bottom? VA borrowers want to know how low interest rates will go, and how VA loans will be affected.

The second half of 2008 and first half of 2009 represented the worst housing market since the great depression according to real estate experts. Optimists say lower interest rates will jump-start the ailing market and help the economy on the road to recovery. The typical reaction when mortgage rates fall is a mad dash to refinance. But, the Federal Reserve may have shot itself in the foot when it announced in December 2008 that interest rates may fall as low as 4.5%. This may have slowed the dash to a brisk walk.

The Feds announcement of the 4.5% target may have unintentionally slowed lending. The fact is that 4.5% is just a guess, and by all means, not a guarantee that the target rate will ever be reached or available to most borrowers without paying discount points (fees used to lower rates). VA borrowers have a slight advantage in the interest rate waiting game.

A VA borrower is not penalized for many things that may adversely affect a conventional borrower’s rate. Credit scores, income, mortgage history, and many other factors can affect an individual’s rate. If you’re a VA borrower, your credit score can’t go up if your credit score goes down. But, you can pay discount points to lower your rate. For VA borrowers, it’s the best of both worlds.

What’s more, conventional and FHA borrowers will most likely need to have a sizable amount of money for a down payment. Most VA loans are true zero down loans.

For those seeking VA mortgages, however, waiting for a few tenths of a point lower rate might not be as imperative as the immediate zero down and 100% refinancing benefits associated with veterans’ loans. Those VA-eligible borrowers with equity in their homes can get cash out now to pay down debts, make home improvements or pay for other things they need.

At any rate, VA loans make sense to most who are eligible. The many benefits associated with veterans’ loans may make them a wise choice for a VA-eligible borrower in any market. Some of these benefits include:

· Zero down payment

· 100% financing on refinances and purchases

· No private mortgage insurance

· No prepayment penalties

· Conforming loan limits over $417,000 in some counties

· Streamline refinance capabilities

It’s good to know that a VA loan can be refinanced under the VA’s interest rate reduction refinance (IRRRL) or Streamline program. With the VA Streamline program, borrowers with VA loans already can bypass much of the typical application and appraisal procedures and can go straight to refinance closing – often with closing costs rolled into the loan.

Those considering VA loans should act now at today’s low rates. If interest rates drop even lower, a VA streamline refinance will enable a VA borrower to get the lowest rate possible. There is no need for an appraisal in most cases and no re-qualifying requirements. Mortgage history is usually all that’s needed with a VA streamline refinance loan.

Time will tell how low interest rates will go. The only thing that is certain now is that VA loan benefits are as attractive as they ever were and refinancing or streamlining with a VA mortgage at today’s low rates can be one of the best decisions a VA borrower could ever make. For more information about VA loans and today’s interest rates contact your mortgage specialist.