Many of you may have noticed by now that mortgage interest rates are unusually low. When interest rates are low, lenders get a wave of VA refinance loan applications. Some key tips can help eligible borrowers determine whether now is the right time to use a VA refinance loan.
Tip #1: VA Refinance Loans Should Result in at least a 1% Interest Rate Reduction
According to many financial experts, if you can reduce your mortgage interest rate by 1%, then a mortgage refinance is worth considering. VA refinance loans can help eligible borrowers reduce their interest rates and save money.
Like all VA loans, the VA refinance program allows borrowers to do without monthly mortgage insurance premiums. Monthly mortgage insurance premiums are required for conventional and FHA loans if less than 20% equity exists in the property.
VA refinance loans can also provide cash out of equity for many homeowners who need to pay debts. This type of VA refinance loan results in a higher balance; therefore, it’s best to cash out when interest rates are low.
Tip #2: Break-even Point for VA Refinance Costs and Savings should be Reasonable
Calculating the break-even point for your VA refinance can help yourweigh the savings against the costs. The break-even point is when the savings achieved with the refinance equal the loan costs. This should happen within months, not years. Refinancing can cost a few thousand dollars and can include origination fee, appraisal, the VA funding fee and some closing costs.
Here is what a break-even calculation may look like:
$6,000 (total costs to refinance) ÷ $300 (monthly savings) = 20 months to break even
The break-even point should happen soon enough for borrowers to enjoy the savings. It’s up to each VA borrower to decide how long that should take. Borrowers thinking about refinancing with a VA loan should plan to stay in the house long enough to see the savings.
For more information about when to use a VA refinance loan, talk to an experienced mortgage specialist.