When it comes to refinancing VA home loans, interest rates today are significantly lower than what they were just a few short years ago. This is because the Federal Housing Administration, or FHA, has dramatically reduced the funding fee it charges for most home loans. When the housing market was floundering many years ago, interest rates were high. At that point in time, financing fees on most conventional loans were so high that many borrowers were not even able to qualify for a conventional loan. As a result, when the housing market started to rebound and home values began to increase, many of the FHA home loans which had been repossessed by borrowers, were then re-sold at low prices.
It was at this point that many FHA borrowers who had to resort to refinancing found themselves with adjustable rate mortgage loans, or ARM’s, which are much higher than fixed rate home loans. Since FHA did not originate most of the home loans that are offered to today’s homeowners, they have historically had to absorb the higher financing fees associated with them. As a result, they often pass on these higher costs to the consumers that take out their home loan. As a result, over the past several years the average interest rate on a VA home loan has decreased by almost half.
What does this mean to a borrower? It means that borrowers can often qualify for lower interest rates by going through a process called preapproval. Basically, when you go through a preapproval process the VA will determine if you are likely to default on your loan. If so, they will request that you obtain a formal preapproval letter from the lender you plan to use to purchase your new home.
The purpose of this letter is two fold. First, it will request additional information regarding your credit rating and financial situation in order to provide them with an accurate assessment of how likely you are to honor your obligations. Second, they will look at the current interest rates you are paying on any VA home loans that you may be in and compare it to the preapproved offer. Based on their analysis they will determine whether or not you are likely to experience a default and thus increase your interest rate. If the final interest rate on your loan is lower than what you were previously quoted then you have passed into the final stage of preapproval.
What do we mean by “at least” in terms of our interest rate? We mean that your interest rates are going to remain at their current level for three months. During this time you will not experience any changes in your loan obligation. Your payment will remain the same, the monthly amortization will remain the same, and the interest will remain fixed. The only difference is that your interest rates will be slightly higher.
Why would anyone want to take out more debt in order to pay lower interest rates? The answer to that question is very simple. When you choose to refinance to reduce your mortgage, you are essentially paying off your mortgage early. You are reducing the amount of money you are paying right now and replacing it with a much lower interest rate. There is no reason to do otherwise unless you are absolutely going to benefit from the lower interest rates.
While there are many variables involved in determining VA interest rates today, there are some easy ways to find out which lender is currently offering you the best deal. One of the easiest ways to do this is through a mortgage site that offers free mortgage quotes. Simply go to the site, fill out your information, and then check out the different interest rates being offered. You will likely be surprised at how low many of these interest rates can be!
One of the reasons that so many people refinance to get better interest rates is because they don’t realize that they may have skipped a few steps in the process. Perhaps they didn’t provide proof of income or they didn’t ask about getting homeowner’s insurance coverage. It’s important to make sure that you are always providing all the appropriate documentation to qualify for the lowest possible rate today. This will help you save money on interest payments down the road, making it well worth the time and effort you put into researching your refinance options.