Should I Refinance?
Below is an example of how my VA Loan Refinance worked for me and may work for you depending on your situation. With rates at all time lows there are an array of factors to consider if a refinance is right for you.
Starting Situation: I had purchased a home in Massachusetts using my VA Loan for $325, 000 in 2008 at 6% interest rate with my total monthly payment including: principle, interest, taxes, and insurance approximately $2,500.
Change in my Situation: My job required me to relocate to be close to New York City in 2009 and luckily I was able to get my place rented covering my total payment amount.
Motivation to Act: In 2010 the interest rates started declining and in November 2011 when rates were hovering around 4% I decided to refinance locking in a rate of 4% doing a VA Interest Rate Reduction Refinance Loan (IRRL).
Result of my Refinance: My cumulative closing costs and fees were around $4000 and my new payment was just under $2000 therefore I was able to reduce my total payment by $500 a month. I was able to re-coop the $4000 that it cost me after 8 months. After those 8 months I’m able to save $500 a month straight to my bottom line.
2008 Total Monthly Payment: $2,500
2011 Total Monthly Payment: $2,000
2011 Costs Savings per Month: $500
2011 Refinance Cost: $4,000
Months to Re-Coop Closing Costs: $4,000/$500=8 Months
Refinance Month: November 2011
Break even month: July 2012
Starting in August of this year I will have paid off my closing costs and fees and will have $500 a month in true savings that I never had before.
Should you Refinance?
How long to you plan on owning the property?
- If you thinking of refinancing then you should be planning on living in your home long enough to re-coop the cost and fees of doing your refinance.
- The best way to do this is to get a good faith estimate or consultation.
What’s your current rate?
Many experts say that a good threshold for looking at whether you should refinance or not is if you can get your rate down by a percentage point.
- VA Loan Captain, Inc. has been refinancing through our program below 3.5%.
- If you are paying 4.5% or higher refinancing may make financial sense.
Do you need cash?
Everyone encounter areas where they need some money for a number of reasons like college, remodeling, ext.
- If for example your student loans are at 6% you would have the option to take money out of your equity at a lower rate to pay off higher paying interest debt.
- Or, if you have credit card debt that you can’t seem to get rid of and paying a high interest rate then taking cash out of your equity at a low interest rate would make sense to pay off very high interest rate debt such as credit cards.