VA loans usually have good interest rates and low costs. If you have one, you might think you’ll never refinance because you don’t want to lose those good terms.
There are some times that refinancing your VA loan just makes sense, though. Keep reading to find out if any of the situations apply to you.
You Want Different Terms
Sometimes when you buy a home you take the terms that are available to you at the time. For example, if your debt ratio was close to the maximum a lender allows for a VA loan, you may have had to take an adjustable rate mortgage. The lower interest rate the ARM offers may have helped you qualify for the loan.
Now that you are in the adjustment period, though, you may think otherwise. If you don’t like the adjusting rate, you may want to refinance to get a fixed rate loan. If you’ve fixed your debt ratio along the way, you may be eligible for the VA IRRRL (streamline refinance) program.
With the IRRRL, you only have to verify your mortgage payment history and that you benefit from the refinance. You don’t have to verify your credit history, income, assets, or even your debt ratio. You just have to prove that you made your mortgage payments on time for the last 12 months and you may be able to refinance for a new fixed rate loan.
You Want to Improve Your Home
Typically, it’s not a good idea to take money out of your home’s equity. If you are using your home as a ‘forced savings account,’ you will decrease its value by taking money out of it. But if you want to improve your home, you invest the money you take out of your home’s equity right back into it.
Not all home renovations increase your home’s value, so talk to an appraiser or real estate agent before you take this step. If your renovations will increase your home’s value, you can see an even greater return on your investment in the future.
You have several ways you can refinance your VA loan to get money out of it. The most common is the VA cash-out refinance. This loan refinances your current 1st mortgage, but gives you a larger principal balance so that you have money to make the improvements.
You Want to Consolidate Debt
You should consolidate all debt into your VA loan. Typically, consolidating your first and second mortgage is the best move. If you have some unsecured debt that you want to wrap into it, you can, but don’t go overboard.
Including too much unsecured debt into your mortgage only puts your home at risk. If you default on the loan because you can’t afford the payment, you could lose your home. If you left the debt unsecured, you wouldn’t put your home at risk.
Consolidating your first and second loan can make things a little easier for you, though. Let’s say your second mortgage has a variable interest rate. This means you never know how much your payment will be from month to month. This can be stressful for you to say the least. If you consolidate both loans into your first mortgage, nothing changes except your payment. Your home is still the collateral, as it was when they were two separate loans. You may pay less interest over the life of the loan if you can score a lower interest rate too.
You Want to Make Your Home Eco-Friendly
Energy efficient changes are a popular trend today. Who wouldn’t want to increase the energy efficiency of their home while lowering their utility bills? In fact, it could even decrease the wear and tear on your utilities, making them last longer. This can also help decrease your costs since you will have to replace things like your air conditioner or furnace less often.
The VA allows you to make up to $6,000 in energy efficient changes and still qualify for the VA IRRRL program. In other words, they don’t consider it a cash-out refinance since the money goes directly toward the energy efficient changes. While you need the VA lender’s approval before you can make the changes, it can be a great way to help the environment and save yourself some money along the way.
Refinancing your VA loan does make sense sometimes. No matter your reason, though, make sure you pay close attention to the costs involved with the refinance. If the costs are too high, there might not be a reason good enough to refinance. Look closely at the costs and make sure you will benefit from the refinance from all angles before deciding.