Comparison of Interest Rates & Other Considerations When Searching For a VA-Backed Cash-Out Refinance Loan
The Basics of VA IRR, or Home Equity Adjustable Rate Lending, are relatively simple and straightforward. In essence, the federal government requires all financial lenders base their interest rates on the adjustable-rate mortgages that are held by the borrowers. When you purchase a home, your lender will guarantee you a fixed interest rate through a standardized contract with the United States Department of Treasury. Your monthly payments are made in accordance with this rate.
Once you make your monthly payments, if you have an existing mortgage, the lender will then deduct the amount of your loan from your credit rating along with the interest rate. This is called an interest refund. If you are going to apply for a refinance loan, your existing mortgage is considered “guaranteed” and any future interest rate or points will be determined according to your new adjusted rate. It is important to remember that when you obtain a VA irrrl, it does not mean that you are guaranteed to receive a fixed interest rate; it simply means that your existing mortgage is officially accounted for when calculating your new adjusted rate. There are two different types of VA IRR; private VA refinance loans and the guaranteed lump sum loan.
Private VA refinancing is considered more beneficial than the guaranteed lump sum loan. With this type of refinancing, you receive a private loan with a lower interest rate than your existing mortgage. Your closing costs are also lower with private VA loans. However, the downside to this type of refinancing is that the interest refund is tax-deductible, but the actual cost of refinancing is higher. You also cannot elect to consolidate your debts with this type of loan. However, with a guaranteed lump sum loan, you can borrow up to more than $1 million and the government will pay all closing costs associated with the loan.
A second popular option when it comes to home equity conversion is a va-backed cash-out refi. A VA-backed cash-out refi allows homeowners to refinance their home equity at a lower interest rate and have the cash accrued during the life of the loan applied to their principle. The difference between the interest rate and the closing costs for the VA refi loan is determined by how long the VA has held the mortgage note. Another advantage of a va-backed cash-out refi is that homeowners can use the money to make home improvements.
A third option for home equity conversion is through a qualified refinancing for veterans. Qualified refinancing for veterans is available through the Department of Veterans Affairs. To qualify for this option, homeowners must be at least 62 years old and currently in good health. In addition to refinancing with the Department of Veterans Affairs, there are also opportunities through local and state government programs. Homeowners can contact their local VA office to discuss their options for a qualified refinancing for veterans.
When comparing rates from various lenders, it is important to consider the terms of the VA loan refi as well as any other closing costs. The term of the VA loan refi is the length of time needed to complete the transaction after which the lender will be paid in full. The term of the VA loans typically ranges from two to ten years. This is in addition to the home equity interest rates and refinancing fees that are assessed.
It is also important to compare apples-to-apples when comparing options for a va-backed cash-out refinance loan. When borrowers opt for a fixed interest rate on a VA refinance loan, they are locked into that interest rate throughout the life of the loan. The payment option is not the same as the payment options for a conventional refinance loan. For example, with a fixed interest rate and a one-year term, a borrower who decides five years down the road that he or she wants to switch to a longer term may have to pay a fee that bumps the interest rate up significantly.
Finally, when comparing an interest rate versus a loan term, it is important to remember that a VA-backed cash-out refinance loan has flexibility that is not available with a conventional loan. One example is that a VA refi does not require a minimum payment or a balloon payment; however, it does require a monthly principal balance. The only way to get out of debt is to make regular payments, but the payment schedule may be more frequent than with a conventional loan. Finally, since the VA-backed loan is guaranteed by the U.S. Department of Veterans Affairs, it offers an excellent interest rate and no closing cost. In fact, closing costs are non-existent.