Although the housing market has plummeted in recent years, the record low interest rates have prompted many homeowners to refinance their mortgages with hopes of obtaining a lower interest rate.
With an Interest Rate Reduction Refinance Loan, also known as a VA Streamline, borrowers are able to obtain a reduced monthly mortgage payment through the most flexible and hassle-free refinance program on the market much easier than they would with a conventional refinance.
Securing a better interest rate through a VA Streamline, even if the difference is only a point, can save a borrower thousands over the life of their loan. A 30-year mortgage at $250,000 and 6.5 percent has a regular monthly payment of $1,580. However, that same mortgage with an interest rate of 5.5 percent has a monthly payment reduced by $161, and today, it isn’t unlikely for borrowers to obtain an interest rate under 4.5 percent.
For borrowers interested in cashing out on their VA loan, they may secure a Cash Out Refinance. Unlike a VA Streamline, with a Cash Out Refinance borrowers can refinance up to 90 percent of their current loan-to-value to acquire cash for home improvements, paying off debt, or to simply make other investments.
Although the current economic downturn has created lower interest rates, it has also increased the guidelines for refinancing which can make doing so more difficult for certain borrowers. VA-approved lenders have been forced to increase their guidelines to protect their investments. Current VA mortgage owners now need a credit check and an appraisal to secure a VA Streamline, and Loan-to-Values are capped at 90 percent.
There is also a VA Funding Fee of .5 percent associated with a VA Streamline however the origination fees and total costs are capped to keep out-of-pocket expenses to a minimum. Although the VA has no income or credit requirements, interested borrowers are encouraged to get their finances in order before applying.
Click to Get Pre-Qualified for a VA Home Loan
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