Section 3: VA Streamline Loan Benefits

The VA loan program was instituted in 1944 and remains one of the most popular mortgage finance options in the United States to this day. VA loans are backed by the Department of Veterans Affairs and allow veterans access to mortgage options without a down payment or private mortgage insurance. Millions of military veterans have taken advantage of this unique housing benefit. But what happens if you have a VA loan and you’re having trouble making your monthly payments? A VA Interest Rate Reduction Refinance Loan (IRRRL) may help you refinance to a lower interest rate through assistance from the VA.

 1. Refinance With A Lower Interest Rate

A lower interest rate can mean big savings. For example, on a $200,000 30-year-fixed loan, reducing the interest rate 1% can mean a monthly savings of almost $120.

If you’re looking to lower your mortgage payment, keep an eye on the market. Look for rates that are lower than your current interest rate. When mortgage rates drop, contact your lender to lock your rate.

Another way to get a lower rate is to buy down your rate with points. Mortgage discount points are upfront prepaid interest paid as a part of your closing costs to get a lower rate. Each point is 1% of the loan amount. For example, on a $200,000 loan, one point would cost you $2,000 at closing. One mortgage point generally results in an interest rate reduction of .25% to .5%.

Whether discount points make sense for you is generally a matter of how long you plan to stay in the home. If you only see yourself in the home for a few more years, it’s probably less expensive to pay a slightly higher interest rate. However, reducing your rate by half a percent could save you thousands over the course of a 30-year loan.

Keep in mind that mortgage refinances are different from a mortgage recast, which is a lump-sum payment you pay toward your remaining principal. Both, however, may give you an opportunity to cut down on your mortgage bill.

 2. Get Rid Of Mortgage Insurance

Mortgage insurance can add quite a bit of money to a borrower’s monthly payment. How you get rid of mortgage insurance depends on what type of loan you have.

Getting Rid Of The FHA Mortgage Insurance Premium

If you got your FHA loan after June 1, 2013, you likely pay a monthly mortgage insurance premium (MIP). If you put more than 10% down, you’ll have to pay MIP for the first 11 years, but if you put less than 10% down, MIP is required for the life of your loan.

If you’re stuck with MIP, refinancing into a conventional loan may be your best bet – but it all comes down to how much equity you have. If you have less than 20% equity in your home, taking on a conventional loan may just mean swapping MIP for private mortgage insurance (PMI). But if you have 20% equity, you won’t be required to pay PMI on a conventional loan.

To determine how much equity you have, you’ll need to know how much your home is worth. When you refinance, your mortgage lender will require an appraisal of the home to determine the value. Your equity will be based on what your home is worth when you refinance – not what it was worth when you bought it. To find out how much equity you have, simply subtract your current loan balance (how much you owe) from your current home value.

Getting Rid Of Private Mortgage Insurance

If you didn’t put 20% down on your home when you bought it, you’re probably paying for private mortgage insurance (PMI) as part of your monthly payment. PMI protects your lender in case you default on your loan.

Getting rid of PMI doesn’t necessarily require a refinance. Once you hit 20% equity in your home, you can ask your lender to remove PMI. There are a few things to keep in mind about this:

• If you’ve hit 20% equity as a result of your home’s value increasing or making extra payments, your lender will probably require an appraisal.
• If you’ve hit 20% equity on your regular payment schedule (i.e., you haven’t made any extra payments), your lender won’t require any appraisal.
• Once you hit 22% equity according to your regular payment schedule, your lender must automatically cancel PMI from your loan.

If 20% equity is still out of reach, a refinance with lender-paid mortgage insurance (LPMI) might be a way to get rid of monthly PMI payments. With LPMI, you can either pay for PMI upfront in a lump sum or opt for a slightly higher interest rate. This allows you to save money since mortgage interest is tax-deductible, but PMI isn’t.

 3. Extend The Term Of Your Mortgage

If a lower payment is your goal, extending the term of your mortgage with a new loan or loan modification can help you get there. A longer mortgage term spreads out the loan balance over more payments.

Here’s an example: Let’s say you bought your home 10 years ago with a $200,000 30-year-fixed loan. Without accounting for taxes and insurance, your payment, at 4.5% interest, is $1,013.

Now let’s say you want to lower your mortgage payment. Since you’ve been paying on your loan for 10 years, you’ve reduced the balance to about $160,000. By getting a new 30-year fixed loan, you’d spread the smaller balance over 30 years. Your new payment, at the same interest rate, would be just $811. That’s a savings of over $300 a month.

 4. Shop Around For Lower Homeowners Insurance Rates

If you’re paying for your homeowners insurance as part of your monthly mortgage payment, then shopping for a better homeowners insurance rate could be an easy way to lower your overall monthly payment.

Call around to insurance companies to get quotes, and don’t be shy about asking for discounts. You could save money based on certain features of your home, like security systems and fire alarms. You could be eligible for a discount based on your employer or job status. And bundling your homeowners insurance with your auto insurance and other policies could save you money too.

You can also review your coverages to make sure you’re not overpaying for something you don’t need. If you can afford it, raising your deductibles is a surefire way to make sure your premiums are lower. Just make sure you know what coverage your lender requires if you’re reducing or eliminating anything. A good insurance agent should be able to help you find ways to save money while making sure all your bases are covered.

 5. Appeal Your Property Taxes

If you have an escrow account on your mortgage, then you’re probably paying for your property taxes as part of your monthly mortgage payment.

Your property taxes are based on the tax assessment conducted by your county. The assessor determines the value of your home and land after putting it through a deep analysis. If the assessor values your home too highly, you’ll end up paying more taxes than you really have to.

You can usually find out the assessed value of your property by looking at your tax bill or visiting your local county recording office’s website. If you think your home is overvalued, you can protest the assessment. Come prepared with a list of recently sold comparable homes or an appraisal if you have one. A reduced assessment could mean lower property taxes and a lower monthly mortgage payment.

6. Lower monthly payments

When it comes to how refinancing works with a VA Streamline, your monthly payments often decrease. Lower monthly payments may result from an extended term on the loan, which allows more time to pay on your mortgage. A lower interest rate could also result in a lower monthly payment if the length of the loan is held equal.

7. Lower funding fee

Instead of mortgage insurance, VA loans have a funding fee that can either be paid at closing, offset with a lender-paid credit, covered by seller concessions (where a seller agrees to pay partial closing costs) or added to the loan balance. The amount of the funding fee on a regular VA loan is anywhere between 1.4 – 3.6% of the loan amount depending on service status, down payment amount, if it’s your first time using a VA loan and whether it’s a purchase or refinance. For a VA Streamline, the funding fee is 0.5% of the loan amount in all circumstances.

8. Potential change in mortgage structure

 As a reminder, refinancing with a VA Streamline could allow you to move from an adjustable-rate mortgage to a fixed-rate loan. ARMs change over time, depending on rate fluctuations. Fixed-rate mortgages lock in a single interest rate until you pay off your mortgage.

 9. Net Tangible Benefit

The VA actually requires that there be some advantage for the borrower if they go ahead with a Streamline Refinance. If refinancing makes it easier for you to make your monthly payments on time, then the VA is off the hook for reimbursing your lender in the case of you defaulting on your mortgage. For a reduction in the term of the mortgage to be considered a net tangible benefit, certain things must apply. The remaining amortization period of the current mortgage bust be shortened, the new interest rate should not exceed the original one, and the principal, interest, and MIP payment of the new mortgage must not exceed the combined amount of the existing mortgage by more than $50.

Common Questions on FHA Streamline Loans

- Are VA Streamline loans better?

Everyone has unique needs for their buying situation. Although VA Streamline loans are very competitive, they are not always the best choice for the consumer. Because of that we recommend you talk to your loan professional for your specific needs.

- Are there any benefits to sellers?

VA Streamline loan l loan buyers have the lease restrictions when it comes to buying and is typically a sought-after product when looking at offers.

- What are Orbit Realty’s and Orbit Home loans benefits?

With Orbit Realty you and Orbit home loans you get the benefit of working with a team that is highly trained and qualified. Okay, maybe every company says they have that, but the truth is that only 10% of companies nation-wide have both a real estate and mortgage company combined and because of that we are able to be one of the most competitive lenders on the market. We are also able to pass savings onto you buy not having to change additional fees that you often see with other lenders. 

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