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Refinancing VA loans may help reduce mortgage payments

Refinancing VA loans may help reduce mortgage payments

Veterans who have a VA loan may benefit from an Interest Rate Reduction Refinance Loan. The loan may allow the interest rate to be reduced when an existing VA home loan is refinanced. Once an IRRRL is administered, the monthly mortgage payment should decrease, according to the Department of Veterans Affairs.

Individuals who have an adjustable rate mortgage may refinance into a fixed mortgage rate. However, the refinancing loan can only be made on a property that used a VA loan to purchase the home. When applying for an IRRRL, no appraisal or credit underwriting package is required, and no money out-of-pocket is needed.

Certificate of Eligibility is not required when applying for an IRRRL​, and the applicant only needs to certify previous occupation of the home for which the applicant is seeking an IRRRL for. While not all interest rates or payments may decrease, many will still find refinancing beneficial.

Many homeowners across the country are seeing positive results from refinancing, according to the second annual refinancing analysis by Freddie Mac. The mortgage company reported 84 percent of homeowners who refinanced their first-lien home mortgage during the fourth quarter in 2012 maintained the same loan amount or lowered their principal balance by paying-in additional closing costs.

"On average, borrowers who refinanced reduced their interest rate by about 1.8 percentage points​," said Frank Nothaft, vice president and chief economist at Freddie Mac. "On a $200,000 loan, that translates into saving about $3,600 in interest during the next 12 months. Fixed-rate mortgage rates hit new lows during December, with 30-year product averaging 3.4 percent and 15-year averaging 2.7 percent that month, according to our Primary Mortgage Market Survey.”

The average interest rate reduction reported was about 1.8 percentage points, saving homeowners about 33 percent on their interest rates, resulting in the largest percent reduction recorded in the 27 years of refinancing analysis.