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
Watch for our next article in this series about the VA refinance program.
More information about VA refinancing with a federally-backed military home loan, talk with a seasoned VA mortgage professional.
Ready to Get Started?
If you're ready to get started, or just want to get more information on the process, the first step is to get multiple rate quotes with no obligation. You can then discuss qualifications, debt to income ratios, and any other concerns you have about the process with the lenders.