Pros and Cons of Refinancing a VA Loan

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refinance a VA LoanShould you refinance a VA Loan?
One of the most popular military benefits is the VA Loan, which makes homeownership more easily attainable for thousands of veterans. Sometimes you can lower your monthly VA Loan payment by refinancing it at a lower interest rate, or by changing from an adjustable-rate VA Loan to a fixed-rate loan. Whatever the reason for refinancing…

One of the most popular military benefits is the VA Loan, which makes homeownership more easily attainable for thousands of veterans.

Sometimes you can lower your monthly VA Loan payment by refinancing it at a lower interest rate, or by changing from an adjustable-rate VA Loan to a fixed-rate loan.

Whatever the reason for refinancing your VA Loan, you should consider the pros and cons as they apply to your situation.

Benefits of a VA Loan Refinance

pros and cons of a va loan refinanceNo matter what kind of mortgage you have, if the interest rates are at least a point lower now than they were when you obtained your loan, refinancing is probably worth the time and effort.

If you refinance for the same number of years, you’ll extend your payment date, but end up with a lower monthly payment.  You can pay more than the monthly payment to reduce the number of years you owe on your home.

If your VA Loan is an Adjustable Rate Mortgage (ARM), you probably find that the interest rate tends to increase rather than decrease, which causes your monthly payment to increase.

It’s not unusual for homeowners with ARM loan payments to find themselves paying more than the current fixed mortgage rates.

In this case, you will probably benefit greatly by refinancing your mortgage to get a lower, fixed interest rate.

If you have a first and second mortgage, refinancing into a single mortgage might help you consolidate your monthly bills to help you save money and make bill paying easier.

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Disadvantages of a VA Loan Refinance

Refinancing a VA Loan usually involves fees, though in some cases you can roll the refinancing costs into the new loan instead of paying anything out of pocket (you can do this with a VA Streamline refinance).

Be sure to evaluate how the fees will affect your monthly payment and determine if it is worth your effort.

If you know you will be moving within a few years, it may not make sense to refinance because you won’t have time to recoup any savings.

Refinancing may cause you to pay more years on your mortgage.

For example, if you had only 15 years left on your 30-year mortgage, you may need to refinance for another 30-year term, which causes you an additional 15 years of payments.

The only time this would make sense is if you could no longer afford your current payment and extending the loan for an additional 15 years will help prevent a foreclosure.

Just keep in mind that if you do this, you will be paying thousands more in interest payments in the long run. Extending the duration of your loan should be a last resort.

Alternatively, sometimes a mortgage refinance will be a shorter period of time, which can increase your monthly payment drastically.

Here is an example of refinancing a 30 year VA Loan into a 15-year loan.

If you are refinancing a mortgage to cash out your home equity (and use the money for home repairs, vacation, or something else) keep in mind that if home prices should drop you will owe more than the value of the home.

This is a problem if you try to sell your home before home values increase again.

Run the Numbers and Apply Them to Your Situation

In some cases, refinancing a VA Loan can save you hundreds of dollars each month, allowing you to recoup the associated costs of refinancing your VA Loan.

Additionally, refinancing into a fixed-rate loan from an ARM can give you stability and certainty regarding your monthly VA Loan payment.

In other cases, you may not save much with a refinance, and it may end up costing too much to be worth your time.

Your best bet is to sit down and run the numbers based on how much you will save, how long you will live in the house, and any other relevant information.

Here are more options for refinancing a VA Loan and current VA Loan rates.

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About Ryan Guina

Ryan Guina is the founder and editor of The Military Wallet. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL Air National Guard.

Ryan started The Military Wallet in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about personal finance and investing at Cash Money Life.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free Personal Capital account here.

Featured In: Ryan's writing has been featured in the following publications: Forbes, Military.com, US News & World Report, Yahoo Finance, Reserve & National Guard Magazine (print and online editions), Cash Money Life, The Military Guide, USAA, Go Banking Rates, and many other publications.

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