Chapter 24:Easily Exchangeable Loans – The VA Streamline Refinance
Advertisements for VA loans are everywhere. You hear radio ads, TV commercials, and if you have a VA loan already, your mailbox gets filled every week with solicitations. If rates click down just a notch, there’s a massive pile of mail screaming for your attention! Is this stuff for real? There’s just an avalanche of it with bold claims of “lower rates.” Why does it seem as if having a VA loan makes you a target for solicitors? Where do these people who call you get your number from? Should you respond to any of these offers?
Refinancing, by definition, is simply replacing old financing with new financing (a new mortgage) because the new terms are more favorable to you. In the money game, it’s the ultimate do-over, a second (or third or fourth…) chance to take advantage of a new opportunity. Homeowners with VA home loans consider refinancing for a variety of reasons, including to obtain a better interest rate, to reduce monthly payments, to consolidate debts by paying off credit cards, or to free-up cash, often for home improvements. There are four reasons to refinance:
- You have a fixed rate and lower rates are now available (e.g., if you have a 5% loan and 4% is now available). Such a “refi” is considered a fixed rate to fixed rate.
- If you have an adjustable loan and want the security of a fixed rate loan. Often in this case, people were enticed by the really low start rate that was offered, and now they want to go back to a fixed rate.
- Some people have a fixed rate but want the lower payments that are available on an adjustable loan. Such a refi is called a fixed to adjustable.
- If someone wants a cash-out refinance, typically where the homeowner’s property has appreciated (e.g., the property was purchased for 400K three years ago and the property values went up 25% so now it is worth 500K), and you want to take out funds for home improvements, debt consolidation or other reasons. (See Chapter 22: The Cash-Out VA Refinance vs. An Equity Line for in-depth detail on financing options.)
- “It’s too much of a hassle.”
- “I’ll have to write a check up front or at closing.”
- “I disliked my previous loan office/mortgage company.”
- “My grandfather told me the rate needs to be at least 2% lower.”
- “I don’t understand or trust the process, and I’m skeptical of all the solicitors.”
- “I find the whole thing intimidating.”
- “It’s too much paperwork.”
- “It costs too much.”
- “My transaction costs were $10,000 – there’s no way I’m paying that again.”
- “My loan balance goes up.”
- “I need equity, or my house is ‘upside down.’ I owe more than it’s worth.”
- “I’m retired and won’t qualify.” “I changed jobs.” “I’m self-employed.”
- “I don’t want my property taxes to go up.”
- “I need an attorney to review all the papers, and I can’t afford one.”
- “My credit’s not good enough.”