VA Loan Myth: Refinancing Loans Always Result In Lower Payments
Refinancing a VA home loan is an excellent way to avoid loan default or foreclosure or simply restructure finances to put the borrower in a better economic position. But borrowers should know prior to applying for a VA refinancing loan that depending on the borrower’s choices, the refinancing low may or may not result in a lower monthly payment.
Even in the case of VA Streamline Refinancing, where the rules state that the loan must result in either lower interest rates or lower payments, the borrower’s decisions make a difference when it comes to getting that lower monthly mortgage payment.
VA insured loans for refinancing purposes allow the borrower to include add-ons to the new VA mortgage. Those add ons may include the financing of discount points, the VA funding fee unless the borrower is exempt from paying it, and the borrower may finance closing costs if they choose to. An additional expense to pay close attention to applies when the borrower is refinancing a VA adjustable rate mortgage or ARM loan.
On top of all those things the buyer is also permitted to include up to $6,000 in the loan for approved energy-efficient upgrades to the home. All of these extras can start to add up, and the result may be a monthly payment higher than anticipated. VA home owners who want to get a VA insured refinancing loan can avoid “sticker shock” by doing the math on all of their add-ons or asking the lender to help calculate the estimated costs and monthly payment of the new loan.
For streamline VA loans where no credit check is required by the Department of Veterans Affairs, the borrower has a limit to how high the new mortgage loan payments can be–did you know that if the new monthly payment goes up by 20% or more the VA requires new underwriting procedures to make sure the borrower is qualified for the loan?
Such rules are designed not only to protect the bank’s investment, but also to protect the buyer from taking out a loan they may not be able to repay if too many extras are included in the VA refinancing loan amount.