During the past three months, veterans who have outstanding VA loans of 12 percent of higher have been encouraged to refinance them. A computer check of all GI loans with interest rates at 12 percent and above revealed there were over 1,200 such loans in Western New York.
Beginning with the highest rates first, veterans were informed that they can refinance their existing VA loans with a new VA loan at a reduced interest rate. This type of refinancing -- VA to VA -- is called an Interest Rate Reduction Refinancing Loan which is authorized by Public Law 38 USC 1810 (a)(8).
This benefit allows a veteran to convert a VA loan to a new VA loan at a lower rate without having to pay any out-of-pocket expenses.
A veteran, who owns a home previously financed through VA, will automatically qualify for another VA loan at a lower rate. An updated appraisal and credit report are not required.
The maximum loan amount for this type of VA mortgage is the current principal balance plus closing costs and funding fee.
To illustrate the amount of savings a home owner can realize: Let's presume your original VA mortgage was $50,000, it has an interest rate of 15 percent, and the loan was amortized over 30 years. The monthly payment (principle and interest) for the mortgage is $632.
If a loan for the same amount, to be paid over 30 years, was closed today at our current interest rate of 9.5 percent, the new monthly payment would be $420. That represents a savings of $212 each and every month or a savings of $76,320 over 30 years.
Reducing the refinanced loan term to only 20 yars, the new monthly payment at 9.5 percent would be $466 which is still $166 less than the original mortgage payment that was amortized over 30 years.
A VA rate reduction loan is a good lesson in how an individual or family can increase its income by reducing its expenses. Whether one's goal is to save more money or to use the increased income for some special purpose, it will be income to use as the veteran sees fit.
Veterans who now own a home that they financed with a VA loan do not need a new certificate of eligibility to apply for a rate reduction loan. The certificate of eligibility used with the original purchase will suffice.
To obtain a list of VA-approved lenders who process rate reduction loans, mail the request to: VA Regional Office, Attn: Loan Guaranty Division, 111 W. Huron Street, Buffalo, New York 14202.
Veterans who have a mortgage other than VA and wish to refinance it with a VA loan are also encouraged to do so under the "Regular Refinance Loan Program", or "Cash Out" as it sometimes is called, Public Law 38 USC 1810(a)(5).
This refinance program allows a veteran home owner to refinance or "Cash Out" for equity in his property up to 90 percent of its value. The veteran will need to establish his eligibility to qualify for "Cash-Out" refinancing.
To obtain a list of those mortgage lenders participating in this "Cash-Out" refinancing program or to receive information on any other inquiry about GI home loans, mail the request to the address listed above.
Keith C. Boerner is loan guaranty officer for the VA regional office in Buffalo and is responsible for the delivery of VA home loan benefits and services in Western New York.