VA LOAN CAPTAIN BLOG & Learning Center

Should I Refinance?

By: Grant Moon 06/15/12 01:23 pm

Below is an example of how my VA Loan Refinance worked for me and may work for you depending on your situation. With rates at all time lows there are a number of factors to consider if a refinance is right for you.

Situation

Starting Situation: I had purchased a home in Massachusetts using my VA Loan for $325, 000 in 2008 at 6% interest rate with my total monthly payment including: principle, interest, taxes, and insurance approximately $2,500.

Change in my Situation: My job required me to relocate to be close to New York City in 2009 and luckily I was able to get my place rented covering my total payment amount.

Motivation to Act: In 2010 the interest rates started declining and in November 2011 when rates were hovering around 4% I decided to refinance locking in a rate of 4% doing a VA Interest Rate Reduction Refinance Loan (IRRL).

Result of my Refinance: My cumulative closing costs and fees were around $4000 and my new payment was just under $2000 therefore I was able to reduce my total payment by $500 a month. I was able to re-coop the $4000 that it cost me after 8 months. After those 8 months I’m able to save $500 a month straight to my bottom line.

Math Breakdown  

2008 Total Monthly Payment: $2,500

2011 Total Monthly Payment: $2,000

2011 Costs Savings per Month: $500

2011 Refinance Cost: $4,000

Months to Re-Coop Closing Costs: $4,000/$500=8 Months

Refinance Month: November 2011

Break even month: July 2012

Starting in August of this year I will have paid off my closing costs and fees and will have $500 a month in true savings that I never had before.

Should you Refinance?

 How long to you plan on owning the property?

  •  If you thinking of refinancing then you should be planning on living in your home long enough to re-coop the cost and fees of doing your refinance.
  • The best way to do this is to get a good faith estimate or consultation. You can get a free consultation and good faith estimate here.

What’s your current rate?

Many experts say that a good threshold for looking at whether you should refinance or not is if you can get your rate d0wn by a percentage point.

  • If you are paying 4.5% or higher refinancing may make financial sense.

Do you need cash?

Everyone encounter areas where they need some money for a number of reasons like college, remodeling, ext.

  •  If for example your student loans are at 6% you would have the option to take money out of your equity at a lower rate to pay off higher paying interest debt.
  • Or, if you have credit card debt that you can’t seem to get rid of and paying a high interest rate then taking cash out of your equity at a low interest rate would make sense to pay off very high interest rate debt such as credit cards.

About Us

VA Loan Captain is a Service Disabled Veteran Owned Small Business (SDVOSB) that assists veterans and service members purchase or refinance a home at a competitive interest rate with their network of VA Approved Lenders. For every loan closed $200 is provided to a partner veteran focused non-profit.

For more information or to get a no cost or obligation consultation please visit www.valoancaptain.com.

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