VA loans are widely recognized for their many advantages. They’ve helped numerous military service members and their families purchase homes. However, the U.S. Department of Veterans Affairs (VA) and the Consumer Financial Protection Bureau have issued a warning regarding unsolicited offers to refinance VA home loans: if something sounds too good to be true, it probably is. Under the right circumstances, refinancing can be a fantastic choice, but you must choose wisely. Check out our refinancing tips for a VA home loan below.
Refinancing Tips for a VA Home Loan
Refinancing involves replacing your existing mortgage with a new one. Sometimes a new mortgage can offer benefits that make it worth your while to refinance. In other cases, you may be better off keeping your current mortgage. As Investopedia points out, you’ll want to review any refinancing offer carefully and calculate the break-even point, or the point when the total amount that you have saved each month by refinancing equals the total amount that it cost you to refinance. Determining how long it will be before you can expect to see savings can help you decide if the time is right to refinance. However, that’s only one consideration. You’ll also need to think about what you hope to accomplish by refinancing and explore your options to find the one that best suits your needs.
Know Why You’re Refinancing
Why does refinancing your VA home loan seem like a good idea? The Balance offers several reasons why people might decide to refinance:
- Reduce your monthly payment. Refinancing can help you get a lower interest rate, which can shrink your monthly mortgage payment. In addition, many borrowers opt to restart the clock on their loan’s term. If you borrow less and have longer to pay it off, your mandatory monthly payment will be smaller.
- Secure long-term savings. A lower interest rate can reduce not only your monthly payment but also the total cost of your loan. Paying less interest over the life of the loan means that you’ll ultimately pay less for the privilege of borrowing.
- Change your loan type. When rates are low or expected to sink, an adjustable-rate loan can make sense. However, the inevitable uncertainty can leave homeowners seeking more stability. Refinancing lets you switch to a fixed-rate loan.
- Access your equity. Turning all or some of your equity into cash allows you to do things like consolidate debts, pay for home renovations, get funds for education, or finance the launch of your own business. A cash-out refinance is a way to gain access to your equity.
Know Your Options
If you want to refinance your VA loan, you have a few different options:
- The VA’s Interest Rate Reduction Refinance Loan (IRRRL): Sometimes referred to as a VA-to-VA loan because it can only be used to refinance an existing VA loan, the VA’s Interest Rate Reduction Refinance loan reuses your existing entitlement and requires less paperwork. There’s no need for a credit or underwriting package, so these loans can be processed speedily, and the ability to roll the cost of the refinance into the loan means that you can get an IRRRL without being out of pocket. However, you cannot use the proceeds of this loan to pay off anything but your existing VA loan. You cannot use this type of loan to turn your equity into cash.
- The VA’s Cash-Out Refinance Home Loan: If you want to access your equity, take a look at the VA’s Cash-out Refinance home loan. While you’ll have a few more hoops to jump through than someone using an IRRRL, you will be able to trade some or all of your home equity for cash.
- A Conventional Loan: Starting with a VA loan doesn’t mean that you have to finish with one. If you have at least 20 percent equity and good credit, a conventional loan may be another alternative for refinancing.
When it comes to refinancing tips for a VA home loan, no list would be complete without a reminder to choose a trusted lender who understands how the VA loan program works. At PrimeLending of Manhattan, Kansas, we’ve built our reputation for quality service by making our customers our top priority. We strive to deliver friendly service, clear communication, and transparency as we guide you through the entire loan process. Whether you’re ready to buy or wondering if refinancing is right for you, we can help. Contact us today to get started.