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When Does It Make Sense to Refi? Rule of Thumb; VA LOANS

Quick Reminder: JVM does VA loans (often in fact). The drawbacks to VA, however, include the restriction that we can only use VA appraisers, and that all section I work needs to be complete.

We are often asked when it makes sense to refinance?

No Cost Loans: If a loan is “no cost” (the lender covers all non-recurring closing costs), it almost always makes sense. $50 per month in savings works out to $600 per year, and thousands over the life a loan. Many borrowers balk at refinancing for only $50 per month, but the entire process only takes a few hours (to provide documents, allow an appraiser to visit, and sign), so the payoff over time is significant.

Loans with fees: It is difficult to refinance smaller loans (under $200,000) at “no cost”), so there are sometimes fees involved. Similarly, some borrowers opt to pay fees for a lower rate. The rule of thumb is that the pay-back from the reduced payment should be in less than 4 years. For example, if non-recurring closing costs are $3,000, the payment savings should exceed $62.50 to make sure closing costs are made up in less than 48 months or 4 years.

Lender Requirements: FHA requires a borrower’s payment to be reduced by at least 5% of their current payment before they will allow a “streamline” (a refi that requires no appraisal) refi. And many conventional lenders require a payment reduction of at least $50 per month for a rate and term refinance. Lenders do not have savings requirements for cash-out refi’s.

Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646

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