Has anyone ever done VA interest rate reduction refinance loan? I recently bought a home and the interest rate is higher than Id like. Any insights would be appreciated!
(Current rate is 5.25.. I would like it below 4)
Posted May 29, 2019, 2:42 PM UTC · edited
I recently finished with an IRRRL on a 9 month old mortgage. Dropped 0.75% off my APR, with approximately $300/mo savings (SoCal). It was painless in comparison to the original mortgage process. We paid nothing out of pocket due to lender credits, and no funding fee with disability. Call around and shop for the best rate! It’s one of those things where you “can’t afford not to”. I did have a hard credit pull, but didn’t have to verify income or assets for the IRRRL.
Remember, you must have made at least 6 monthly payments on your mortgage (not 6 months old), and at least 210 days from first payment.
If you don't mind me asking, what was your previous and your current rate?
Sure, 4.5% for the original mortgage closing 4/18. The new rate was 3.75% closing in February. I spoke to a mortgage broker yesterday, and they let me know rates can be found for even lower due to some rate drops this week. Both rates were with 780+ credit scores, although my understanding for the IRRRL is credit score is less of a factor of new rate.
Lenders still have price adjusters for credit score in most cases. Usually a 620 score, while still likely okay for a VA loan, will get the.borrower a higher interest rate. 780+ is great and it's in every lender's top bucket.
Rates are currently trending down. Housing market has stalled.
What is the lifetime cost of the new loan compared to the old? Same length of repayment?
Great question, and I’m happy to explain because my results are skewed due to resetting the 30 year repayment timeline.
All of these numbers are without taxes and insurance since I’m on mobile and am just demonstrating a rough idea of the big picture. Also, in each instance the lender and original seller provided enough credits that we were $0 out of pocket. I’m also exempt from the funding fee.
Original mortgage was $663k @ 4.5% for 30 years... google calc says total cost is $1,209,356.
After IRRRL, amount financed was $657k @ 3.75% for 30 years... $1,095,361 lifetime cost.
We made 7 payments at the old rate, which is $23.5k before refinancing. I’m no math wizard, but adding the payments already made to the new lifetime cost would be roughly $1,118,874. Since these are rough numbers, I’m approximating a lifetime savings of ~$90.5k.
In reality, we’re still applying the old payment to the new loan, which means there’s a little extra going towards principal every month. We expect to pay down the loan a bit quicker and save even more than that on interest over the life of the loan.
Anyone feel free to jump in and rip this math to shreds.
Uggh that total makes my skin crawl lol. I was uneasy when I bought my 200k house. I appreciate the detailed reply. Everyone focuses on interest rate and monthly payment as reasons for refinancing. When so much more goes into the total cost of the loan vs your actual savings.
Also a side note. When you are shopping rates ask about purchasing points to get the rate down. When I was shopping irrl (divorce) I was quoted anywhere from 3.00-4.2. But one lender was at 3.15 and offered another .5 for .5% of the loan. Which took it down to 2.65.
Which I found out later that if you are the veteran you can do an assumption to remove a cosigner without refinancing the loan. If the ex gets the house you can do the same but it ties up your va guarantee.
Yup, that’s the SoCal market unfortunately. We did quite well for this area due to it being a new construction home. I recently considered relocating due to job offers in both San Diego and Washington, DC. For the same standard of living in both these areas, we’d be looking at a $900k+ mortgage! While the monthly payment was affordable, I don’t want to calculate total cost of ownership for that one. Mortgages are painful.
All of your other advice is pretty sound. If rates are still trending down in 6 months, I’ll probably look at the IRRRL process again to get my rate even lower.
Be careful. Lenders will add in all sorts of extra costs and fees. When you are shopping rates make sure to compare apples to apples. Factor in not just a paper interest rate reduction. Look at the funding fees, origination etc.
How long do you plan on keeping the house? Can you pay the closing costs and funding fees out of pocket? What is the total cost of the loan over the entire lifetime? What is the total cost of your current loan?
Im at 3.375 (30yr fixed) and I wouldn't look at an IRRL unless I could get down to 2.75 ish. Or I had the extra cash on hand to pay any loan refinance costs.
My current rate is 5.2 for 30 years and I could get 3.3 for 23 years.. mortgage payment will go up 7 dollars.
Sorry my input wasnt trying to say it was a bad idea. I just encourage good research. Sidenote: what lender offered a 23 yr mortgage? I was looking for a 20yr but it wasn't widely offered and the interest rate difference wasnt drastic from 30yr fixed to 20yr fixed.
Is this your 1st home purchase? How long have you had the house?
So just a couple cautionary notes some from my own experience. I almost went with a 15yr. As my mortgage, ins, and taxes were going to be right at the top of my comfort level budget. After the tax year the county reassessed my house. My taxes went up $58 a month. And my homeowners insurance has gone up twice.
Yes this is my first house.. I’ve only been here about half of a year. When I bought I was very conservative with how much I was spending so my mortgage it pretty affordable and I don’t have any other debt. I appreciate your input though. I will continue doing my research before moving forward.
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I've done 4 in the last 8 years. Here's how to get the best rate:
Go to Zillow (https://www.zillow.com/mortgage-rates/) and input your data
Call the lowest rate brokers directly and ask about their rates. They are a lot more flexible if you call them directly instead of clicking the link on Zillow.
Fax them the documents they ask for, e.g. your mortgage note, LES, bank statement
They send a notary to your house to close the loan a few weeks later
In my area, the lowest rate is 3.25% with zero points.
There are a lot of IRRRL companies that will start sending you junkmail to refinance. Most of them have junk terms, but if you go looking some refi offers will actually be pretty good and legit. I've been told that for them, refi's are cheap and easy to do so they can afford to offer better rates than originators. I definitely second other comments to compute how long it will take to recoup the new closing costs.
I've done them personally with my own mortgage and also professionally for hundreds of veterans. They are FANTASTIC! But there are some rules set forth by the VA, designed to protect you from predatory lenders (of which there are many; particularly the kind that send those mailers every week).
The nice thing about the IRRRL is you do not need to prove your income (unless it's retirement/disability/etc) or your assets (as long as you include the closing costs with your new loan). There is no appraisal, and no debt to income analysis. You just need to list your employer and the lender will check to make sure you actually have employment. The VA Funding Fee (if you're not 10%+ disabled) is .5%. It's an amazingly easy loan to get approved for and a lender with experience can close it in under 15 days.
Now, the rules...
VA requires that your rate drop at least half a point to do a VA IRRRL, and the rate drop cannot come entirely from buying points (that's what a predatory lender would do). You also must have made at least SIX payments and had your existing VA loan for at least 210 days from the first payment date (not the date you closed).
Every lender who does VA loans can help you with this, not just the one you are currently with and not just the ones who send you junk mail. I have one closing next week and one who just applied today; they both bought homes last year.
You'll want to do a recoup calculation to make sure refinancing is a good move. Add up the NEW closing costs (everything except funds going into escrow, plus your VA Funding Fee if you have one). Now divide that by the monthly payment savings you will see on the new loan. You should save the amount the new loan is costing you within 48 months for that to be worthwhile, in my opinion. Preferably 36 months. VA actually requires you to recoup most of the closing costs within 36 months to be eligible for the IRRRL, but they do not factor in everything.