What is VA Refinancing?
Through the VA Loan, eligible veterans, service members and surviving spouses of service members have access to special refinancing options designed to lower monthly mortgage costs or provide the ability take cash out of a home’s equity.
Benefits of VA Loan Refinancing
Those interested in reducing their mortgage rate should consider the VA Streamline refinancing, otherwise known as an IRRRL (interest rate reduction refinance loan). With the VA Streamline, homebuyers have the opportunity to lower their interest rate, providing additional cash flow each month.
Additionally, homeowners have the ability to change the terms of their loan, switching from an adjustable rate to a fixed-rate, or a 30 year to a 15 year loan in order to pay off their mortgage sooner.
Those contemplating taking cash out of their home’s equity should consider the VA Cash-Out refinance. With the Cash-Out refinance, homebuyers can use the equity in their home to help pay other obligations.
Additionally, homebuyers wanting to refinance from a different loan program into the VA Loan can do this through the Cash-Out refinance program.
VA Interest Rate Reduction Refinancing
The VA Streamline, which is officially known as an Interest Rate Reduction Refinance Loan, or IRRRL, was created so that eligible homeowners had the opportunity to receive a lower rate and decrease monthly expenses.
In order to qualify, the homeowner is required to currently have a VA Loan and must also receive a lower interest rate and lower monthly payments with the refinance. That is, unless the borrower is refinancing an adjustable rate mortgage to a fixed rate.
The VA does not require a credit check or home appraisal to receive a VA Streamline Refinance; however, in today’s lending climate, those considering a Streamline Refinance should expect lenders to look at credit scores as well as order a home appraisal.
With the Streamline Refinance, origination fees and total costs are capped to keep the up-front costs as low as possible for the homeowner.
VA Cash Out Refinancing
Another popular refinancing option is the VA Cash-Out Refinance, which allows you to tap into your home's equity and extract cash. Borrowers aren't required to have a VA Loan in order to choose this option; many homeowners use the cash-out option to refinance from an FHA or conventional loan.
Qualified homeowners may be able to refinance up to 100 percent of their home's loan-to-value and use the proceeds for home repairs, remodeling and other needs.
When to Refinance
Homeowners considering a VA Loan refinance should understand that timing is everything when refinancing a mortgage.
In most cases it wouldn’t make sense to refinance a mortgage if you don’t plan on staying in that home for the near-future, just like it wouldn’t make sense to refinance at a time when interest rates are soaring.
Your goal should be to achieve a lower interest rate that cuts monthly payments, significantly decreasing the amount of interest paid over the life of the mortgage.