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Topic 9. Amortization
November 8, 2012
This section has been updated to correct hyperlinks and make minor grammatical edits.
a. Requirement
All VA loans must be amortized if the maturity date is beyond 5 years from the date of the loan. Loans with terms less than 5 years are considered term loans and need not be amortized.
Generally, for amortized VA loans:
payments must be approximately equal,
principal must be reduced at least once annually, and
the final installment must not exceed two times the average of the preceding installments.
Exceptions to these requirements are made in the case of:
GPMs – See chapter 7,
Growing Equity Mortgages (GEMs) – See chapter 7,
alternative amortization plans prior approved by VA,
and construction loans.
b. Alternative Amortization Plans
Certain amortization plans which do not meet the requirements described in subsection a above may be used if approved in advance by VA. A lender may submit an amortization plan to VA for prior approval if the plan:
is generally recognized; that is, is used extensively by established lending institutions, but
does not meet the requirements of approximately equal periodic payments and a reduction in principal not less often than annually.
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Exception: GPMs and GEMs.
c. Special Provisions for Construction Loans
See “Amortization” in chapter 7.
d. Standard and Springfield Plans
The Standard and Springfield plans satisfy VA amortization requirements.
The Standard plan provides for equal payments over the life of the loan. The amount applied to interest decreases, with a corresponding increase in the amount applied to principal.
The Springfield plan provides for gradually decreasing payments over the life of the loan. The amount applied to interest decreases, while the amount applied to principal remains constant.