My name is Ryan Johnson and I will be the VA loan specialist going over this program with you. Now I am a licensed mortgage professional in 37 different states across the country. I have been with Low VA Rates for 4 years and in the time frame I have helped hundreds of families buy homes and refinance their homes and take advantage of these lower interest rates like you are looking to learn about now.
The purpose of this quick overview call is to give you a general idea of what the VA streamline refinance program is, what the different interest rates, programs, terms, that you can take advantage of and a basic understand of what it takes to get started. This overview call is not meant to replace a one on one conversation. In fact, immediately following this overview you will be transferred back to my staff so we can have a one on one conversation to go over your specific numbers on your loan. But at least this will give you a good overview of what this program is about and what it can do for you so that when we do have that one on one conversation you already have an idea of what you can take advantage of and be better informed.
We’ll start off with what this VA Interest Rate Reduction Program is. Back in 1980 the VA came up with this program as a way to put you into a better, lower interest rate loan than you bought your house on. They do that by letting you pay off that higher rate loan and replacing it with a new lower rate loan. Thereby saving you money in interest. Using the VA hybrid for a refinance http://www.youtube.com/watch?v=SUuyhTdlvao Now there is nothing really special about that process, civilians have been doing that sort of thing since mortgages have been around. They just call it a refinance. But what makes this program special is how you qualify for it. See if you were a civilian and you tried to refinance your house you have to go through that same long, drawn out expensive, frustrating process that you originally went through when you bought your house originally.
I’m sure you remember that process vividly because in most cases it tends to one of the least enjoyable experience when it comes to buying something. Well believe it or not everyone has to go through that over again just to lower their rate if that is something they want to do. Everyone has to accept you. One of your very special veteran benefit entitlements is this program, the VA Streamline refi where your able to reduce your interest rate with no full appraisal, no full credit report, no income asset or employment verification and no inspection. Quite simply you sign the VA’s application, supply some of your existing mortgage documents and you get a new lower interest rate. That new lower rate will help you to pay off your house faster or lower your monthly payments or both. You also get to miss a couple mortgage payments when you take advantage of this program. You are also able to get a cash refund from your existing lender that you are entitled to. So we will go over all of those benefits in a minute. Now the VA offers four basic options when it comes to buying or refinancing a home. And so each of these options has a different goal in mind and also I’ll go over the details of those and what we are going to do is compare each of these options to an example veteran.
We’ll just say for our example veteran who has a 6% interest rate on his loan of $200,000. And we’ll see what would happen if that veteran was to go with each of these different options. Just to kinda give you an idea of what each option can save you. And I’m gonna go over the interest rates of each option for you as well. Now of course your numbers are going to be different when we go over those but at least gives you a general idea of what each of these programs is about. So we’ll go ahead and look at option 1. Option 1 is by far the most popular program on this VA streamline refinance. The reason why is the number one most popular goal I hear with the veterans that call in, and we get hundreds of calls a day is I want to lower my monthly payment as much as possible. Well, option achieves that better than any other option. That is the reason it is the most popular. You can get an interest rate as low as 3.75% on a 30-year loan with option 1. Well, if our example veteran was to go with this program it would drop their rate from 6% down to 3.75% That is a 4500 drop in annual interest or 375 dollars per month. That is what makes that program so appealing. Now option 1 is called the VA 3 Year Hybrid Program and here is how it works. The 3.75% would be fixed in and guaranteed for three years. At the end of that time, the VA then allows the rate to change but only by a small amount. The VA only allows the rate to go up or down a maximum of 1 percent in any given year thereafter.
Now this is not one of those fully adjustable mortgage programs you have heard about in the news the last couple of years that have caused our country so much trouble. The VA would never stick you into a loan like that for one big reason. Your loan is guaranteed by the department of veteran affairs. Now when you bought your house they may have never explained to you what that guarantee is so I will do so now just in case you weren’t aware. What that guarantee means is that the VA guarantees that you will always be able to make your payments, you’ll be able to make them on time and if you should ever have any difficulty making your payments the VA will step in and actually help you or even pay your mortgage payments for you until you get back on your feet and even if that measure should fail and the lender is forced to foreclose on your house the VA is the one that is responsible for paying off the mortgage loan. Now the reason that is important to know is that is the only reason the lender was willing to give you this house with no down payment because that very attractive guarantee. And the VA only puts that guarantee on safe, stable, reliable, loans that have a proven track record of the veterans being able to pay their payments on time throughout the entire term of the loan. And that is no exception for option 1. You can have confidence knowing the VA is putting you into a safe stable reliable loan because they certainly don’t want to pay off your mortgage loan and they definitively don’t for the tens of thousands of veterans that take advantage of this program every single month.
Now the reason they came up with this option 1 is because they are taking advantage of a confirmed US statistic. And that is we as American homeowners only keep our mortgages an average of three to five years and then we get rid of them. WE refinance to take advantage of lower interest rates and better loan programs like you are looking to do now. We refinance to take cash out of our properties and pay off debt, do home improvements, or we sell our homes for job changes, job transfers, family changes, or we just want to live in a different area. There are many different reasons why we sell or refinance our homes so statistically whether you plan on it or not you are very likely to do one of the items I mentioned in the next 3 to 5 years.
The VA looked at that and said, Well why in the world are most of our veterans taking these 30-year fixed mortgages and paying a higher rate than they have to? Let’s put a loan program together that is just as safe as a fixed rate loan because it is fixed for that important 3-5 years and we can offer it at a significantly reduced interest rate and here you have the birth of this 3 Year VA Hybrid Program at 3.75% interest rate. Now lets say you get option 1 and you have enjoyed the last three years of 3.75% You’ve saved a bunch of money and year four rolls around and you haven’t made any changes and you are going to be in the loan. No problem. At that point, the VA has stated the rate can change. It can go down it can stay the same it may go up .1% but the max it can go up is 1% to a maximum of 4.75%.
Well that probably a whole lot lower than what you have right now and if you don’t want the rate to change at all at the end of those three years you can take advantage of this same easy streamline refinance program and lock in at another low three years or maybe just go into a full fixed rate at that time if you’d like. The VA wanted to have a way for you to lock into a different loan program anytime during the three years or after should you choose to do so. So that is option 1 the most popular program of all because it does lower your payment the most. Option 2 is very similar. It is also a hybrid program, the Vas 5 Year Hybrid program. And you’re able to get an interest rate as low as 4.5% on that program.
So if our example veteran is at 6% went with option 2 they would save themselves $3000 per year in interest or just about 250 per month on option 2. Option 3 is the VA 15 year fixed loan. This option will help you pay off your house faster compared to your 30-year term loan. What this option is going to do for you if our example veteran went with this loan it would drop their rate from 6% to 4.5% on a 15 year fixed loan that would save them just under $200,000 in payments and interest on top of the nice bonus of paying off their house in half of the time so this is the program that will save you the most over the term of the loan. Now that does come with a bit of a cost. That cost is in most cases you will experience a higher loan payment than your current payment. But it doesn’t have to be that much more.
The typical increase is anywhere from 10-30% of your traditional 30-year payment. So for example if you are paying one thousand per month for your mortgage you would see your payment rise to 1100 to 1300 per month and you would be able to pay your house off in half of the time with this option 3. So if you can afford that payment look no further because this is the best option for you because it will save you more than any of the other options. And that leads us to the fourth and final option which is just your standard, plain Jane 30 year fixed loan. Just like you’ve probably got right now. You are able to get an interest rate based on today’s rates as low as 4.75% on that particular loan program. So if our example veteran went with option 4 it would drop their rate from 6% to 4.75% which is a 2500 annual savings or just about 208 dollars per month they would save in payments and interest in option 4. Now those are the four different options with their interest rates and example of the savings they can offer you.
On top of that, regardless of which option you choose you will get the following additional benefits Number one the VA allows you to miss your next two months of mortgage payments and that could mean two, three, four thousand dollars in your pocket by missing those next two mortgage payments. The second benefit the VA offers you is about two weeks after this transaction closes you are going to get a check in the mail for whatever is in your current escrow account and you get to keep that money and do whatever you want with it.
The reason you are getting that check is because part of setting up this new loan for you is the VA requires us to fund and establish you a new escrow account to ensure that your taxes and insurance are covered when come due but you already have an escrow account with your current lender so by law when we pay them off they are required to refund this money to you and you can keep that money and do whatever you want with it because like I said your taxes and insurance will be taken care of in your new loan. And so if you add the escrow refund to the two skipped payments you could walk away from this transaction with 2-3-4 5 I’ve seen as much as 9000 dollars in a veterans pocket in addition to saving 500 dollars a month every month on his monthly payment. So you can get some important financial benefits from this program and that is why the VA makes it so easy to qualify for and tries to motivate you to take advantage of these programs.
At this point I usually get a lot of questions: “Ryan what’s that catch? Is the program legitimate? It sounds too good to be true!” I can assure you this program is legitimate in fact once this overview call is done and we have our one on one conversation I will even give you the vas website so you can look this program up yourself on the VA’s website and you will notice that website will be very similar to what you have learned today on this overview call. There is no catch. The VA is trying to help you by giving you a lower interest rate, but you do need to be aware of some changes when you do a VA streamline refinance. There’s nothing really major it is still a VA loan, you still retain all of the same VA loan benefits, your taxes, and insurance are still included in your monthly payment. Literally everything is identical to your existing mortgage except for these four changes Number one, you will be paying your payment to a new VA lender because your old VA lender is paid off. Number two, you will have a lower interest rate. Number three you will have a lower payment as long as you choose 1 2 or 4. Now regardless of which you choose another bonus of your new lower payment is the fact that more of your mortgage payment is going to be applied to the principle balance every month. For example when you pay your mortgage payment right now let’s say 200 per month goes toward your principal balance every month.
Well, after this transaction is done more like 250 to 300 per month is going to be paid down on your principle every month so you will actually see your mortgage balance drop more rapidly with this program. Just another benefit there. The fourth and final change you will experience is that you may be financing a little bit of a higher loan balance than you existing loan balance.
There are three reasons your loan balance can change.
Number one, the two months missed mortgage payment. That is an optional benefit the VA offers you. If you take that money to use for your own purposes it’s not free money, its deferred interest that will be added to the loan.
The second reason your loan amount can go up it the escrow refund check. Remember you get to keep that money and do whatever you want with it but it’s not free money either because we have to establish you a new escrow account to ensure your taxes and insurance are covered and that is just added to the loan as well. And so at this point I get a lot of questions like, Ryan I am adding 2 3 4 5 dollars whatever it ends up adding up to in your case to your loan that you don’t have to.
Are you sure that’s a good idea? Well, believe it or not, the answer to that question is yes! In most cases, it is a very good idea and here is why: You are going to be financing this new loan at such a low-interest rate, as low as 3.75%, you would be better off taking that money from the two missed payments and the escrow refund and putting it to good use and paying off high interest rate credit card bill, a car loan, a personal loan something that is financed at a much higher interest rate than 3.75% and now you can save even more money per month on payments and interest on top of the savings from the mortgage. And once again those are only suggestions and these cash benefits are optional and you don’t have to add to your loan, but they are there if you like. And a third and final reason your loan can go up is because of closing costs.
Whenever you purchase or refinance real estate, regardless of the loan or lender you choose there are closing costs involved. However, there are four very nice things about closing costs when it comes to the VA Streamline refinance. Number one you do not need to pay a single penny of these costs out of pocket. These costs are simply rolled up into the mortgage and are included in the monthly payment a savings we have already gone over. The second nice thing about these costs is that in most cases, now I am not an accountant so I can’t speak for you directly, but in most cases these costs are 100% tax deductible. Meaning you will be able to write these off when you file your taxes. You should expect to get a bigger return from the IRS. So, once again consult your tax professional on that. The third nice thing about these costs is believed it or not these costs are optional.
You don’t need to add any costs to your loan if you don’t want to and here is how that works. Let’s say you take option 1 and you qualify for a 3.75%. Because you may be concerned about adding costs to your loan because you may be moving in 6 months you can choose to close your loan at like a 4% or a 4.25% probably much lower that what you pay now but when you take a little bit of a higher rate the VA allows you to reduce or even waive the closing costs involved so nothing gets added to your loan. And so we can go over that in detail if those costs are a concern of yours after this overview call. And the fourth and final thing that is nice about those costs is the fact that the VA is looking out for you.
The VA built this program to put you into a better loan than you are in now and that includes ensuring that you are saving more in interest than this transaction is costing you. And so they have a very simple test they run that you must save more in interest than the transaction costs you or they won’t let you do it. It’s their way of protecting you to ensure you are putting yourself into a better financial situation than if you stuck to your existing loan so we will go ahead and run that test after this overview call to ensure you are making a good decision by going into this program or whether you should just stick to your existing loan. Now as far as what closing costs can look like, they should be very similar to what was involved when you bought the house. You probably don’t quite remember what those were, most people don’t but on a national average they tend to be between 2-3 percent of the outstanding loan balance. Now of course you can reduce or waive those costs by going with a little bit of a higher rate but that typically what they tend to be.
Ok, so you have just heard the details of what this program involves and what these changes involve. Now let’s say one of these options is peaking your interest and you like the idea of missing some payments and lowering your monthly payment, what happens next?