Mortgage payments impact your entire budget, not just housing. Higher payments can decrease your grocery budget, emergency funds, or even make a PCS move even more stressful.
That’s where refinancing can help. It may lower the monthly payment or trade an adjustable rate for something steadier. However, lower payments aren’t always helpful. Fees or longer loan terms can cost you more later, even when the payments look better today.
So, when should you really do it? This article looks into when refinancing your VA mortgage is beneficial to your finances and when it’s not the solution you’re looking for.
How VA Mortgage Refinancing Works
In refinancing, you replace your existing mortgage with a new loan, with new terms. Some do it after interest rates fall, while others refinance for steadier payments or access to home equity.
NewDay USA and other lenders offer refinancing options to qualified borrowers. Here are two options you can choose from:
VA Interest Rate Reduction Refinance Loan
Commonly called an IRRRL, this option lets you refinance your existing VA mortgage loan with fewer qualification requirements.
Many homeowners opt for the IRRRL when interest rates drop, or when they want to switch from an adjustable-rate mortgage to a fixed-rate loan.
When you switch to a fixed-rate mortgage, you’ll have steadier monthly payments. This option can help you manage changes in your service, from deployment to relocation, and even temporary income changes.
VA Cash-Out Refinance
Compared to an IRRRL, a VA cash-out refinances lets you borrow against home equity. You can use the proceeds for various activities, such as:
- Home repairs
- Renovations
- Medical expenses
- Debt consolidation
With this refinancing option, you can use home equity to afford major home repairs and renovations that will cost thousands of dollars upfront. It’s better than relying on high-interest credit cards or personal loans.
You can also use the proceeds to consolidate your existing loans from credit cards or personal loans, easing the financial pressure you may currently have. Still, turning your short-term debt into a long-term mortgage may increase your total interest over time.
When to Opt for Refinancing
Refinancing will only work if you know when to opt for it. Here’s when it can help with your finances.
Interest Rates Have Declined
Mortgage rates affect how much you’ll pay monthly, whether principal or interest. So, the lower the rates, the lower your payments will be.
As a result, you’ll free up some of your budget for other important expenses or even save it for your emergency fund.
However, closing costs are still important. Various fees, like lender charges and appraisal fees often range between 2% and 5% of your loan amount.
Still, it can take time to breakeven when refinancing VA loans. If you spent $6,000 to refinance and save around $200 monthly, you’ll break even in 30 months. And moving before you breakeven may erase the benefit you gain from the refinancing.
Adjustable-Rate Payments Have Become Unpredictable
Adjustable-rate mortgages will increase your housing costs when market rates go up.
But when you switch to a fixed-rate loan, you’ll lock in a consistent payment amount. This stability can help military families deal with relocations and income changes.
Many who opt for this refinancing option value payment stability more than having the lowest possible interest rate.
High-Interest Debt Becomes Difficult To Manage
High-interest debt can quickly cut into your budget, especially when the balance isn’t moving.
A VA cash-out refinance may roll those debts into one lower payment. Just check the long-term cost first. A smaller payment can still cost more if it stretches the debt out for years.
When Refinancing Is Not the Answer
While helpful, refinancing won’t always be your solution. What you spent to refinance may be more than what you’ll save, especially if refinancing means longer loans.
Here’s when you shouldn’t refinance:
- Restarting a long-term mortgage after paying the original loan for years
- Paying more interest over time, even with lower monthly payments
- Closing costs amounting to thousands
- Losing the benefits of refinancing by selling the property before you breakeven
If the savings feel small and the costs feel heavy, refinancing can wait.
To Refinance, Or Not To Refinance?
Refinancing should leave your budget feeling steadier, not stretched in a new direction.
Before signing, look closely at the new payment, closing costs, interest rate, and loan timeline. Your next move matters too. Staying in the home for several years may give you time to recover the costs. Moving soon may limit the benefit.
For veterans and military families, the best refinance is not always the one with the lowest monthly payment. It is the one that makes daily life easier now without creating a bigger financial burden later.
