VA vs. conventional loan

Dear Dr. Don,
I'm in the military. I was under the impression that VA mortgage rates were lower than other rates, with the exception of variable rate mortgages. Is there something my loan officer isn't telling me?
Military Mike

Dear Mike,
VA mortgages are guaranteed by the Veteran's Administration for 100 percent of the loan amount, to a maximum that varies by region. They are available only to veterans and qualifying members of the armed services. VA loans offer several advantages over other mortgage loans, including easier qualifying terms, limiting what the borrower will pay in closing costs and low down payments. It's not the cheapest rate in town; it just helps veterans and members of the armed services to own homes.

U.S. Home Finance does a nice job of discussing VA mortgages from start to finish.

Compound interest

Dear Dr. Don,
Do credit card companies compound interest daily? How does one compare a daily compounded rate with a simple interest rate -- for example, a 3 percent credit card rate vs. a bank loan rate of 9 percent?
Penny Perplexed

Dear Penny,
Most credit cards compute interest expense for the billing period using your average daily balance and a monthly interest rate. The Truth in Lending Act requires lenders to state their effective interest rates on an Annual Percentage Rate (APR) basis. That allows the borrower to compare loan rates. You're right, the more frequent compounding results in a higher APR, but it won't make a 3 percent loan more expensive than a 9 percent loan.

For example, a 9 percent nominal rate, when compounded monthly, has an APR of 9.38 percent. Don't forget to consider annual fees for the credit card, and closing costs for the bank loan in your analysis.

Related information: Dr. Don's biography Submit a question to Dr. Don Archive of Dr. Don columns

Bankrate.com writers base their answers on our editorial content and advice of financial professionals. We make no claims or representations about the accuracy, timeliness or completeness of such content, advice or the answers provided to you. Our content, advice and answers are intended only to assist you with your financial decisions. However, by its nature such information is broad in scope. Your financial situation is unique, and our content, advice and answers may not be appropriate for your situation. Accordingly, we recommend that you get different opinions and seek the advice of your accountant and other financial advisers before making any final decisions or implementing any financial or investment strategy.

-- Posted: Oct. 8, 1999