The Federal Reserve's recent interest rate increase has heightened fears that mortgage rates may rise before some homeowners get a chance to refinance. In many cases, the barrier is that home prices that have not yet recovered sufficiently to allow homeowners to refinance, but VA refinancing may be the perfect solution if you are in that situation.
If you have a VA mortgage, you don't have to wait for housing prices to recover before you can refinance your VA loan. That means you can act now, and stop worrying that you won't get your chance to capture today's low mortgage rates.
An Uneven Housing Recovery
The crash in housing prices created a frustrating paradox for many homeowners. On the one hand, mortgage rates plunged to unprecedentedly low levels. On the other hand, falling home prices wiped out the equity in many properties, leaving those mortgages under water – loans where the balance owed exceeded the current value of the collateral. In other words, it was both an ideal time to refinance and an impossible time to refinance.
According to the S&P/Case-Shiller Home Price Indices, nationally home prices bottomed out in February of 2012, and have since recovered by 31 percent. However, this still leaves them nearly 5 percent below their July 2006 price peak. Even so, with several years of mortgage payments in the interim, prices have recovered sufficiently that most homeowners who bought in at the absolute peak in prices should now have above-water mortgages.
Unfortunately though, the housing recovery has been uneven, lifting some areas much more than others. For example, while some major cities have fully recovered, home prices in five big markets – Phoenix, Miami, Tampa, Chicago, and Las Vegas – are still 20 percent or more below July 2006 levels. This means many of these homeowners, especially those who took out home equity loans somewhere along the way, may still have underwater mortgages and be unable to refinance. Homeowners in many other slow-to-recover neighborhoods around the country face a similar plight.
Meanwhile the clock is ticking – no one knows how long low mortgage rates will wait around. Fortunately for homeowners with VA mortgages, refinancing need not depend on waiting for a sluggish housing recovery to bring their loans back above water.
How VA Refinancing Can Help
If you have a VA loan and live in an area of the country where home prices have been slow to recover, you may be interested in the VA's Interest Rate Reduction Loan (IRRRL) program. This is an expedited refinancing program designed to help people with VA loans take advantage of lower interest rates. It can also be used to stabilize your loan payments by switching from an adjustable-rate to a fixed-rate mortgage.
Some prominent features of the IRRRL program are as follows:
- It requires no new property appraisal or credit analysis. This removes both lack of equity and credit problems as reasons for not refinancing.
- It allows refinancing with no upfront cost. If you are strapped for cash, you can avoid paying closing costs out-of-pocket by including those costs in amount you are financing in the new loan, or by agreeing to a higher interest rate. Be advised, though, that this will probably be more expensive in the long run than paying those costs upfront.
- You are not restricted to your current lender. You can get an IRRRL program loan from any VA lender, so you are free to shop around for the best deal.
- This is for refinancing your existing balance only. You cannot do cash-out refinancing under the IRRRL program.
Access to VA mortgages is a privilege some Americans have earned by serving the U.S. military one way or another. Expedited refinancing is part of that privilege, so if you have a VA loan, make sure you find out about the IRRRL program and how it might help you.