You may be able to lock in a lower mortgage rate by refinancing with a VA refinance loan if you or your spouse are a veteran. Refinancing your mortgage through a VA refinance loan could reduce your interest rate, make monthly payments more affordable or shorten your loan term so you can pay off your mortgage faster.
Just like VA loans, VA refinance loans are backed by the US Department of Veterans Affairs, which makes them especially secure loans in the eyes of private lenders that issue them. If you are eligible for a VA refinance, you can take advantage of lower interest rates — especially if you’re refinancing from a conventional loan. Conventional loans and refinances tend to have higher interest rates and more fees than VA options, which is why VA refinancing can be particularly appealing.
Here’s everything you need to know about VA refinance loans, who is eligible and what current rates are.
Current VA refinance rate trends
Right now, VA refinance interest rates are hovering just above 6%, compared to the 30-year fixed-rate for conventional refinances which is around 6.8%. The Federal Reserve increased its benchmark interest rate for the fifth time in September, pushing mortgage rates up slightly. Mortgage rates overall have been rising since the beginning of the year, but leveled out in recent months as the Fed’s actions continue in line with market expectations.
Some volatility in mortgage rates is anticipated as concerns grow over the potential slowing of the economy, but regardless of the economic climate, securing yourself the lowest refinance rate possible will help you save tens of thousands of dollars over the lifetime of your loan.
What are VA refinance loans and who should consider one?
To qualify for any type of VA loan, refinance loans included, you must be either an active or retired member of the military, or the spouse of one.
Refinancing (whether through a VA or conventional refinance) allows you to replace your existing home loan with one that typically has a lower interest rate and a new loan term that will offer valuable savings over the long run.
There are many different reasons to consider refinancing. If you want to shorten your loan term and pay off your mortgage faster, you can refinance from a 30-year mortgage into a 15-year mortgage. Doing this will decrease the amount of interest you pay over the lifetime of the loan, but it will increase your monthly mortgage payment.
If your current mortgage rate is high, you also might be able to lock in a lower rate, which could decrease your monthly payment. Doing this could free up cash flow available for other expenses like car payments, high-interest debt, home improvements or education expenses.
Pros of a VA refi
Lower interest rate: You will pay a much lower interest rate compared to a traditional 30-year or 15-year refi, potentially saving you tens of thousands of dollars over the course of your new home loan. No down payment required: There is no down payment needed to complete a VA refinance.No private mortgage insurance requirement: If you refinance a conventional loan with less than 20% equity in your home, you typically need to purchase private mortgage insurance, but no mortgage insurance is necessary for VA refinancing.Less stringent credit requirements: Like regular VA loans, VA refinance loans tend to allow for lower credit scores and incomes than conventional refis.
Cons of a VA refi loan
VA funding fee: Although it’s a one-time expense, this upfront fee can add thousands onto the total cost of your refinance. However, it can be rolled into the refinance amount rather than paid upfront. Occupancy restrictions: You must live in (or at some point have lived in) the house you are refinancing.Service requirements: You must be an active or retired military member, or the spouse of one. Fewer options: If your current home loan is not already a VA loan, you can refinance, but only as a cash-out refinance (which we’ll explain down below).
Current mortgage and refinance rates
We use information collected by Bankrate, which is owned by the same parent company as CNET, to track daily mortgage rate trends. The above table summarizes the average rates offered by lenders across the country.
FAQs
There are two main types of VA refinance loans available. If you already have a VA mortgage, you can refinance with an Interest Rate Reduction Refinance Loan (IRRRL), or what is commonly known as a “streamline” refinance, which can give you a lower interest rate on your new mortgage. However, if you have a conventional mortgage or other type of home loan you cannot refinance with a VA IRRRL. Just as with all refinances, this type of refinance replaces your current mortgage with a new one. To qualify for a VA IRRRL refinance, you must be able to prove that you currently live or have at one point lived in that home.
If you want to refinance a different type of mortgage into a VA refinance, your only option is to refinance with a cash-out refinance loan, which is a bit more involved. A cash-out refi allows you to take a lump sum of cash from the equity you’ve built up in your home and it works a little differently than a standard rate and term refinance (which is essentially what the VA’s IRRRL option is).
When you complete a cash-out refi, you’re still replacing your old mortgage with a new one, but you end up with a bigger loan than you had before. That’s because you receive the equity you’ve built in your home back as cash — and this amount is added on to the loan. As a result, cash-out refis may come with higher fees and rates. You’ll also pay more interest over the long run, but the trade-off is the immediate access to cash you can use to pay off other debt or life expenses.
To complete a VA cash-out refi, you must currently live in the home, qualify for a VA-backed home loan Certificate of Eligibility, and meet both the VA’s and your lender’s requirements for income, credit score and other requirements.
VA mortgage refinances do have an upfront funding fee, but it’s minimal compared to the fees you typically pay for a conventional refi. You can also roll this fee into the refinance loan amount and pay it off over time. For an IRRRL, you are required to pay a fee equivalent to 0.5% of your loan. For a cash-out refinance, you must pay a fee worth 2.3% of your loan’s value for first-use and a 3.6% fee after first use.
You will still have to pay lender-specific fees such as closing costs, which can add up to thousands of dollars that you will pay no matter what type of mortgage you are refinancing.
The biggest differences between a VA refinance and a conventional refinance are the criteria, the interest rate you will pay, the fees you will be required to pay and the credit and income requirements lenders will expect to see from you as a borrower. VA refinance loans are only available to current or former military members and their spouses, and they have lower interest rates, fees and income requirements.
More mortgage tools and resources
You can use CNET’s mortgage calculator to help you determine how much house you can afford. The CNET mortgage calculator factors in variables like the size of your down payment, home price and interest rate to help you figure out how large of mortgage you may be able to afford. Using the CNET mortgage calculator can also help you understand how much of a difference even a slight increase in rates makes in how much interest you’ll pay over the lifetime of your loan.