The latest numbers from Freddie Mac should greatly interest military borrowers: Fixed-rate mortgages hit their lowest level since such numbers have been tracked, just 3.84 percent for a 30-year loan.
This is a number that should cause VA loan borrowers to take a look at their current financing. What’s the rate you’re now paying? If you refinanced your current loan how much could you save per month?
There are two basic approaches to a VA refinance. There’s the VA Streamline program, which is designed to move current VA homeowners into fixed-rate loans with lower rates. It’s also intended to help borrowers move from adjustable-rate financing to fixed-rate loans. The other approach is a Cash-Out refinance, a new loan which allows you to get cash at closing.
With the Streamline program the VA has no requirement for a credit check or appraisal. However, while the VA provides mortgage insurance it doesn’t actually supply the cash used to make the loan. The money comes from private lenders the odds are that they will raise questions about credit and home values.
Under the Streamline program a qualified borrower can replace a current loan with new financing. The borrower cannot get cash at closing with a Streamline refinance, however you can add most settlement expenses to the loan amount, creating a refinance with little or no cash at closing.
Borrowers have to understand that the term “no cash” does not mean the same thing as “no-cost.” There will be costs, the question is whether they will be paid with a bigger mortgage that includes the old loan plus closing costs or will the borrower cover such expenses with cash from savings?
The other VA refinancing alternative is the Cash-Out refinance. With this program — if you have sufficient equity — you do get cash at closing and that cash can be used as you prefer, provided the lender agrees. Since a mortgage is low-cost debt – especially today – one of the best uses for the money obtained from a Cash-Out refinance is to pay off high-cost debt such as credit cards.
Paying off credit cards can significantly reduce monthly costs and thus produce a financial advantage. But the benefit of refinancing to accomplish this goal can be lost if the borrower once again runs up additional credit card charges. Refinancing and lowering monthly costs should be seen as a fresh budget-balancing opportunity, the chance to reinvigorate one’s finances by holding down debt, cutting costs and putting cash in a savings account. This is a great way for borrowers to increase credit scores and prepare themselves if a sudden need for cash arises.
Even though refinancing may result in a lower monthly mortgage payment VA borrowers should ask if the benefits of a refinance are sufficient to justify the loan.
The quick and easy way to test the value of a refinance is to compare monthly savings with closing costs. For instance, imagine that a new loan will save you $75 per month. Imagine also that the cost to refinance will be $4,000. In such a scenario it will take 54 months before the borrower begins to see real savings from the transaction. This may make sense if you’re
going to remain at the property, but not if you’re leaving in two years.
Talk with a Veterans United refinance specialist at 855-524-7279 to learn more about how a Streamline or Cash-Out loan can help you.