A lot of financial advice in the housing market is given to those looking to buy or sell their homes. But what if you’ve already bought your dream home and still want to stay financially savvy?
One option you may have considered is refinancing. The prospect of a lower rate or re-extending to a 30-year-mortgage may be appealing, but the perceived hassle of essentially re-buying your home deters many of the homeowners refinancing can help the most.
For those in the military community interested in refinancing, check out this information about refinancing using VA loan benefits.
Types of VA Refinances
There are two main types of refinancing for those looking to take advantage of their VA benefits.
The first is an Interest Rate Reduction Refinance Loan (IRRRL), more commonly known as a VA Streamline refinance. The VA Streamline allows borrowers to refinance their current mortgage and reduce the interest rate without messy paperwork.
Because many choose to roll their closing costs into the overall loan amount, principal balances may increase after a VA Streamline but often times this is temporary and it is important to look at how your payments will end up in the long run to evaluate if a Streamline is right for you.
The second type is known as a Cash-Out Refinance. Qualified homeowners can refinance for up to 100 percent of their home’s value and use the cash for improvements, debts and other important projects.
Costs v. Savings
Refinance loans aren’t free. But that expense can be worth it when homeowners are saving a good chunk of change each month over the life of their loan.
If you were paying $1,200 a month for a $250,000 30-year fixed rate mortgage at a rate of 5 percent, refinancing to a rate of 4.25 percent has the potential to save you more than $200 a month. But monthly payments aren’t your only expenses when refinancing.
Let’s look at a quick example: Say the closing costs come out to $4,000 and the Streamline is going to lower your monthly payment by $100. If you’re folding those closing costs in the loan, divide the amount by the monthly savings of your Streamline. In this case, $4,000/$100 = 40.
That means it will take you 40 months, or 3¼ years, to recoup those closing costs. Depending on how many years are remaining on your loan term, that’s probably a pretty solid investment.
One of the greatest parts about the VA loan process is the availability of incentives for energy-efficient improvements. VA borrowers can utilize an Energy Efficient Mortgage (EEM) to tack up on up to $6,000 to their loan for certain energy improvements. Obtaining a home energy audit is a great first step toward determining whether this option makes sense for you.
Conventional to VA loan
Many military personnel who bought their home utilizing a traditional loan think that they missed out on their chance to utilize their VA loan benefits. But qualified military members with conventional loans or even FHA loans can refinance into a VA loan using the Cash-Out option.
VA loans typically feature less stringent requirements and better rates than other loan types.
Deciding if and how to refinance will take a lot of research on an individual level. Make sure you ask yourself what your goals are from refinancing to avoid overdoing it every time you see a low rate.
Although it’s important to always consider alternatives that can save you money, refinancing too much can really cost homeowners in the long run in closing costs.
In the end, the best tip anyone can give you on deciding if you should refinance is to talk to the experts. When you’re dealing with VA loans it’s always best to contact a company familiar with military benefits to make sure you’re getting the most accurate information.
You can contact a VA Refinance specialist at Veterans United Home Loans anytime at 800-884-5560. A loan specialist can examine your financial situation, your equity position and offer expertise and advice when it comes to considering a refinance.
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