How to avail lower mortgage rate on VA loan refinance
With VA loans, the borrower always has the option to get it refinanced. The advantage of refinance is that the borrower can reduce the mortgage rate which in turn reduces the monthly payment on the loan. There are two types of refinances available with VA. One is cash-out refinance and second one is IRRL (Interest rate reduction refinance loan). The borrower enjoys multiple benefits out of refinanced VA loans. These benefits are listed below:
Private lenders are the ones who offer VA loans but it is backed by the government. This is the reason that the lenders usually offer attractive terms.
With IRRL, the existing borrowers have an easier way to refinance.
Usually with mortgages, there is an insurance required on mortgage. With VA loans, no such insurance is required.
With the loans offered from private lenders, a penalty is charged if the borrower wants to close the loan early. This is called prepayment. With VA loans, this charge does not apply.
Let us understand these options of refinances in details.
IRRL:- IRRL is considered as one of the easiest refinance option available. VA streamline refinance is another name given to IRRL. IRRL does not allow the borrower to take out the cash but it does allow below benefits:
For a VA loan, first the eligibility needs to be checked. However, when the borrower decides to refinance the loan, there is no need to recheck the eligibility as it is already checked at the time of initial issue.
Credit statement is another thing that needs to be established at the time of taking the loan but in case of VA loan refinance, it is not required. In some cases, lender might need it though.
There are certain costs attached with the loan called as loan costs. In case of refinance, the borrower has the option to include this in total cost of the loan or if they decide to go for a higher loan interest, the lender would bear the cost.
However, there are benefits of refinancing loan with VA, borrowers must still be aware of below points:
There is a funding fee of 0.5% for IRRL. If the borrower is a disabled veteran, there are chances for it to be waived off. It can also be made part of the loan.
Lenders are not obliged to provide refinance under IRRL but if borrower’s wishes to do it, VA authorized lenders can provide it.
One should always check that refinancing is actually beneficial either in terms of lower interest rate or the loan moves to an adjustable rate and not fixed rate.
For refinanced houses, immediate occupancy is not a must.
If someone has availed a non-VA loan, he can also get it refinanced under VA loan provided he proves his eligibility for the same. A VA funding fee is also charged for the same.
Cash out refinance:- This option allows the borrower to take loan of a higher value than required to pay off the loan. The difference amount will be handed over in cash to the borrower. In case of similar programs with other vendors, the amount that can be refinanced is up to 85% of the value however in case of VA loan; it can be refinanced up to 100%. Since the borrower takes the amount more than what is required, the debt also increases accordingly. So a professional advice must be taken.