VA Refinance for Building Equity Faster

Blue house on top of stack of money (Photo: Flickr/Scott Lewis)
Blue house on top of stack of money (Photo: Flickr/Scott Lewis)

VA-eligible borrowers whose priority is to own their homes outright or build equity more quickly may want to consider refinancing with a 15- or 20-year VA-guaranteed mortgage.

Are these high on your priority list for considering a VA refinance loan?

  • I want to build equity in my home faster
  • I want to repay my loan and own my home in less time
  • I want to obtain a lower interest rate than can be obtained with a 30-year mortgage

A reduced term VA refinance loan may enable you to cut your mortgage duration by as much as half.  When market conditions are right, a VA-eligible borrower can reduce the amount of time it takes to build equity in the home and even own the home outright faster.  Using the VA refinance program, a 30-year mortgage can be reduced to 20 or even 15 years.   

Reducing the term of a mortgage typically leads to higher monthly payments.  However, when interest rates are low, the switch from a 30 to a 15-year mortgage can be less drastic than many may think.  Consider each of these examples of $250,000 mortgage amortizations:
  • 30-year loan at 7% = $1,663 monthly or total of $598,772 over time
  • 15-year loan at 5% = $1,977 monthly or total of $355,857 over time

Surprisingly, at just 2 interest points lower, a 15-year mortgage at 5% can cost an existing 30-year borrower at 7% just over $300 more per month.  The savings, when one considers the total payments over the duration of each mortgage, can be astounding.  The 30-year borrower making minimum payments at 7% could end up paying nearly $250,000 more over time than the 15-year borrower at 5%.  That’s a quarter-of-a-million dollars!  The benefits gained by refinancing to a lower term can vary based on individual loan characteristics. Taxes and insurance are not included in these examples. 

Going from a 30- to a 15-year mortgage is not for everyone.  Borrowers should always consider the costs to refinance and make sure they can afford a potentially higher monthly payment before making the adjustment.  Borrowers with current 30-year mortgages at higher interest rates may stand to benefit the most from a reduced term at a lower rate. Other advantages to VA refinancing can include:

  • Up to 100% loan-to-value
  • No private mortgage insurance
  • No prepayment penalties for early payoff

More information about VA refinancing with a federally-backed military home loan, talk with a seasoned VA mortgage professional.