Owning your home “free and clear” is the targeted goal for many U.S. veteran homeowners. With VA interest rates at historic lows, the time has never been better for you to take the steps necessary to pay off your home as quickly as possible.
Do you currently have a VA loan with a 30-year fixed interest rate mortgage of 4.25% or higher? Using a VA streamline refinance, you may have a window of opportunity to pay your home off much quicker, with less interest, and at a monthly payment close to what you are now paying. (You can go here to check out VA refinance rates.)
Exercise caution here. Moving from a 30-year mortgage to a 15-year mortgage will save you money over the life of the loan. However, if the rate of your 15-year loan is not at least 1 % below your current 30-year interest rate, moving to a 15-year loan can substantially increase your monthly house payment.
Refinance with a VA Streamline Loan
Here are some possible advantages to moving to a 15-year streamline loan:
- No appraisal or credit underwriting package is required when applying for a streamline loan.
- Streamline loans require no “out of pocket” money. All costs are included in the new loan amount; or, the new loan interest rate is set high enough for the lender to pay the costs.
- You save a bundle of money over the life of the loan.
- Low VA Rates will process your application for a 15-year streamline loan.
Own Your Home Sooner
For illustrative purposes, let’s say your original VA loan is $150,000 and you have 20 years left on your loan. You have paid on your home for 10 years and have reduced the principle by $25,000 (meaning you have a loan balance of $125,000). Here is a comparison of keeping the existing 30-year mortgage at the higher interest rate or of moving to a lower-VA loan rate for a 15-year mortgage.dsf
30-yr Fixed at 5% Interest:
- $150,000 loan amount
- $800.00 monthly payment
- $288, 193 in total payments
- $138,193 total interest paid
15-yr Fixed at 3% Interest:
- $125,000 loan amount
- $862.00 monthly payment
- $155,180 in total payments
- $30,180 total interest paid
The VA streamline loan is actually the VA’s Interest Rate Reduction Finance Loan (IRRL) and it comes with some restrictions:
- It can be made to refinance a property only on which you have already used your VA loan eligibility.
- It must be a VA to VA refinance.
- According to the VA website, a Certificate of Eligibility (COE) is not required. But if you have your COE, take it to the lender to show the prior use of your entitlement.
- No “cash out” option exists for this loan.
- No loan other than the existing VA loan may be paid from the proceeds.
- The occupancy requirement for a streamline loan is different from other VA loans. For a streamline loan, you need only certify that you previously occupied the home.
You can always check out the VA website for eligibility details on a VA streamline loan. Generally, veterans using the VA Home Loan Guaranty benefit are required to pay a funding fee. The required fee reduces the loan’s cost to taxpayers. The funding fee is a percentage of the loan amount—which varies based on loan type, military category if you are a first-time or subsequent loan user, and whether you make a down payment.
You have the option to finance the VA funding fee or pay it in cash, but the funding fee must be paid at closing time. You do not have to pay the funding fee if any of these apply:
- You are a surviving spouse of a veteran who died in service or from a service-connected disability.
- You are a veteran receiving VA compensation for a service-connected disability.
- You are a veteran who would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay.