When wondering if it’s a good idea to refinance your existing VA loan, by running the numbers with your loan officer, the math typically points the way. If the numbers work out they’ll say so and it’s an easy process from there. There are two ways to save money when refinancing your VA loan, both in the short and long term.
If interest rates have fallen and they’re lower than what you now have that will pretty much tell you a refinance is in your future. But it’s not just about the interest rate but what your new monthly payment will be. A smaller loan amount will have a smaller decrease in payment compared to a larger VA loan using the very same interest rate. So it’s important to look beyond just the rate and what the rate actually represents. In addition, you’ll need to compare the monthly savings with the amount of closing costs needed to close your VA refinanced loan.
There are different opinions sometimes between loan officers about how long is reasonable when the savings add up to more than the closing fees. Some say two years while others might suggest three or less, but in reality it’s really more a matter of keeping the home long enough to recover the closing costs. Otherwise, it might not make sense. If you save $50 per month with a new VA loan and your closing costs are say $3,000 then you will recover your closing costs in 60 months. If you save $100 per month in this scenario it would take 30 months. Work with your loan officer to decide which path is right for you.
Another way to save money refinancing your VA loan is to shorten the term of the loan. A shorter term loan will have higher monthly payments but you will save much more money in interest payments to the lender. It’s a trade-off between higher monthly payments and lower overall interest costs but refinancing from a 30 year to a 15 year loan is relatively common. However you decide, the numbers should show you the way.
*It is required to be active or retired military to apply for a VA loan.