Do you currently have a VA loan? If so, you may be getting a ton of mail and phone calls with offers to refinance your loan and lower your interest rates. While the good news is that you may be able to refinance to get a lowly monthly payment, the bad news is that there are mortgage brokers out to make a quick dollar off of you even if it’s not in your best interest. My job as the Real Estate Doc is to look out for my fellow vets in San Diego, and in this video I’ll break down the current refinance market to help you decide whether refinancing your VA loan is right for you.
A lending company offering to save you money and lower your monthly payment sounds great—only if it’s true. While interest rates are currently low (meaning there’s true potential to lock in a lower rate), you want to look at the all the factors of any refinancing offers you receive to make sure it’s actually worth it. I recently purchased a property and almost immediately started getting mailers from lenders wanting to refinance my house. It wasn’t long before the calls came in; when I spoke to these companies, many times their numbers didn’t really add up. While the offer looked great from the outside, crunching the numbers showed me that I wouldn’t actually be saving money over time.
In short, these companies want to make money—and there’s not necessarily anything wrong with that. The problem lies in the lenders that are trying to refinance vets, even when it’s not in their best interest. Some will also call and tell you they are from the VA; this is a huge red flag, as the VA guarantees loans but doesn’t give them out. No lender works for the VA, though they can originate a loan backed by them. Another caution lies in origination fees, as some of these lenders make 3-4 points, or percentages of the loan amount, on a loan but don’t actually save the vet any money in the end. Sure, the monthly payments were lower, but the loan amount was increased in the long term. This is pretty much the definition of a bad deal.
I’m not saying you shouldn’t refinance at all—rather, you need to know what to look out for and make sure you’re aware of who you’re refinancing with. A great way to determine if a lender’s offer makes sense for you is to see if they’ll process your application for an IRRRL (“Earl”), or an Interest Rate Reduction Refinance Loan. Known more commonly as a streamline refinance, this VA program simplifies the process—as long as you’re saving money or refinancing from an ARM loan to a fixed-rate loan.
Being cautious doesn’t mean that refinancing might not make sense for you. For example, I know a vet couple who were able to go from a 4.6% interest rate to 3.3%, a move that will save them $300 per month. Not only are these amazing monthly savings, but they’ll also be able to pay off their mortgage 6 years earlier and save nearly $60k if they continue to pay their original monthly payment. So clearly, there are some good options out there among all the predatory lenders.
If you need any advice on your current situation, feel free to reach out to me and I’d be happy to help you weigh your options and refer you to a great lender I know and trust.