If you are currently serving in the United States Armed Forces (USAF) or if you are a military veteran, you can take advantage of numerous benefits designed to help you and your family enjoy financial security. Of these benefits, VA home loans are among the most popular. Below are five benefits associated with refinancing your current loan into a VA home loan.
Americans have numerous options available to them when it comes to buying homes, even if their credit isn’t perfect. Often, when people secure home loans with less-than-perfect credit, they are required to pay for private mortgage insurance, often referred to as PMI, on top of their monthly mortgage payment. This PMI is designed to help the bank recoup some of its losses in the event the homeowner defaults on his or her mortgage, and it can add hundreds of dollars to mortgage payments. Refinancing into a VA home loan can remove the PMI requirement and save you thousands of dollars each year.
VA home loans tend to have lower interest rates than traditional mortgages, which can not only immediately reduce your monthly mortgage payment but can also save you tens of thousands of dollars over the course of your loan. Dropping your interest rate by even one percent makes a significant difference, and many veterans have found financial freedom simply by refinancing into a VA home loan.
If you’re stuck in a high-interest conventional mortgage and your efforts to refinance into a more affordable payment have failed in the past due to your less-than-perfect credit, you may be surprised to learn that VA home loan credit requirements are more relaxed. This means that even if you’ve been turned down for lower-interest financing, you may still be able to refinance into a VA home loan. While the government does not actually lend the money, it does guarantee up to 25% of the loan, which gives lenders a little extra reassurance.
Believe it or not, if you came into a lump sum of cash tomorrow from an inheritance or lottery winnings, you might be penalized for paying off your conventional mortgage early. When a lender makes a 15- or 30-year loan, it expects a certain amount of interest over the course of that loan and paying it off early cuts into the lender’s profits. In order to recoup some of that loss, most lenders impose a prepayment penalty. This is not the case with VA home loans. You can pay off the balance of your loan in full at any point without additional fees.
Home equity lines of credit, or HELOCs, are great for things like home improvements or getting through a sudden financial hardship. Many veterans mistakenly believe that refinancing into a VA loan will mean they can no longer utilize their homes’ equity in their times of need, but this is simply not the case. There’s no such thing as a VA home equity loan; while the VA backs up to 25% of your original home loan, it does not back your HELOC. This means that in order to truly benefit from the equity in your home with a low interest rate, you will need a good credit score – and the right lender.
As you can see, there are several benefits associated with refinancing your conventional mortgage into a VA home loan. You can drop your monthly PMI payments and save money on interest, and you can do it all with a lot more flexibility. The best part is that if you decide to pay off your home 10 years early, there’s no prepayment penalty.