What Can a Refinance Do for You?
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Types of VA Refinance Loans
In evaluating your options for a VA refinance, it’s helpful to understand what the VA program offers. Essentially, there are two types of VA refinance loans: the VA streamline refinance loan (IRRRL) and the cash-out loan. A “cash-out” loan doesn’t necessarily require you to take cash out. Let’s examine these refinance programs and how they can work for you.
VA Streamline Refinance
A VA streamline refinance, also known as an Interest Rate Reduction Refinance Loan (IRRRL), has a very specific purpose: to reduce your interest rate on your current VA loan. If you already have a VA loan, you may be able to get a VA streamline refinance loan for a lower interest rate and a lower monthly payment. Advantages of this program include:
- No new COE
- Reduced funding fee of 0.5% (waived for some)
- Less paperwork overall, leading to streamlined processing
- No appraisal required by the VA (lender requirements may vary)
A VA streamline refinance is a great way to reduce your interest rate with an often simpler process than that of a typical refinance. You can typically use the same COE you obtained for your current VA loan. In addition, due to fewer steps, the loan can be less costly and can often be processed more quickly.
VA Cash-Out Refinancing
As its name implies, a VA cash-out loan can be used to turn your home’s equity into cash. Often, borrowers use the funds to cover credit card debt, a second mortgage, medical bills, college tuition, a home remodel, or high-interest loans.
Why Do You Need Cash?
Other Reasons for a Cash-Out Refinance
While it’s technically called a “cash-out refinance,” you don’t always need to take out cash with this full refinance option. When you use the loan this way, you aren’t cashing out your home’s equity by adding to your loan principal. This can be a good option if you don’t already have a VA loan and want to get a lower interest rate or monthly payment, eliminate monthly mortgage insurance, switch from an ARM to a fixed-rate loan, or shorten the duration of your mortgage from, say, a 30- to a 15-year loan.