Wondering what your refinancing options are? As you’re doing your research, you may find yourself in information overload. However, if you already have a home loan backed by the U.S. Department of Veterans Affairs (VA), you may find that sticking with a VA-associated loan option could give you a great advantage.
Many current military borrowers choose to refinance with a VA interest rate reduction refinance loan (IRRRL), also known as a VA streamline refinance, because of the advantages they may be able to receive. And they may already know that the VA helps make housing more affordable and accessible for military borrowers since they already have a VA loan and have been through the loan process before.
If you have a VA loan and are wondering what kind of refinance loan can work for you, you may want to consider learning more about VA streamline refinances.
Eligibility
The requirements to be eligible for a VA streamline refinance may vary depending on your lender and your specific situation and circumstances. However, the VA does have some set guidelines:
- You must already have a VA loan.
- Your new loan must be used to refinance your current loan.
- You must certify that you live in or used to live in the home covered by your loan.
- Your new loan must be the first mortgage if you have a second mortgage on the home.
To verify that you’re able to get a VA streamline refinance, make sure you speak with the lender you’re working with. They should be able to let you know if you’re eligible.
Advantages
Interest Rate
Potentially securing a lower interest rate is one of the most common reason borrowers choose to refinance. Being able to lower your interest rate means you may be able to pay less in monthly mortgage payments and pay less in interest over the life of the loan.
Term
You may want to lengthen or shorten your loan term, depending on your financial goals. Lengthening your term may help you decrease your monthly mortgage payments, but it may take longer to pay off your loan in full. In contrast, shortening your term may help you pay off your loan faster, but your monthly mortgage payment may significantly increase.
Loan Type
If you have an adjustable-rate mortgage (ARM), you may be able to convert it to a fixed-rate mortgage for more predictable monthly payments. You may also be able to convert your fixed-rate mortgage into an ARM if interest rates are falling.
Closing Costs
VA streamline refinances typically have less or lower closing costs than other refinance options. You may also be able to roll your closing costs into your loan with one caveat: There cannot be more than two discount points included in the loan.
Drawbacks
Stricter Requirements and Guidelines
Getting a VA streamline refinance typically comes with stricter requirements and guidelines. To refinance your VA loan, your new interest rate must be lower than your current one which means you may be waiting a while for interest rates to drop before you can refinance (unless you’re refinancing an ARM). In addition, your new principal and interest payment must be less than your current payment. You are also required to sign a statement acknowledging these effects of your new loan.
Only Applicable to Your Current Home
You can only apply your new VA streamline refinance to the property that is covered by your current VA loan. This means you cannot switch your loan to a new property.
No Cash-Out
If you’re looking to tap into your home equity with a refinance, a VA streamline refinance will likely not be a good option. They cannot be used to take money out of your home’s value or pay off your debt. The one exception to this is if you’re making energy efficiency improvements to the home.
Other Refinance Options
VA Cash-Out Refinance
Whether or not you have a VA loan, you may be able to opt for a VA cash-out refinance. This type of refinance lets you tap into your home value to get cash out to pay off debt, make big purchases and more.
Rate-and-Term Refinance
A rate and term refinance may allow you to refinance to change your mortgage interest rate or loan terms. The loan amount would stay the same, but you may be able to pay off your loan sooner or get lower mortgage payments. While this option is similar to a VA streamline refinance, it likely won’t have the same advantages.
No-Closing Cost Refinance
When you get a no-closing cost refinance, you may be able to roll your closing costs into the principal loan balance or get them covered with a higher interest rate. Be aware that this may increase your overall monthly mortgage payment. Not all lenders offer this type of refinance so if you do decide to take this option, make sure to speak with your lender first to see if it’s feasible.
Refi with Confidence
Not many refinance loan options come with the same advantages that a VA streamline refinance does. If you’re eligible, it may be a great option to potentially lower your monthly payments, pay off your debt sooner or convert your loan type to a new one.
No matter your needs, it’s important to speak and work with a lender who’s experienced with VA loans so you can help ensure the process goes as smoothly as possible. Additionally, don’t forget you can always consult the U.S. Department of Veterans Affairs website for more assistance. You have valuable resources available. Take advantage of them.
Intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
