A VA loan is a type of mortgage backed by the U.S. Department of Veterans Affairs that grants veterans, military personnel and eligible surviving spouses access to affordable home financing. The VA loan program also extends beyond traditional home loans by offering VA loan refinancing programs. If you qualify for a VA loan but already have a conventional mortgage in place, you can refinance your home to take advantage of VA loan benefits. Alternatively, if you already have a VA loan but qualify for lower rates, you can streamline the refinance into another VA loan to take advantage of savings.
It’s not only easier to buy a home with a VA loan, it’s easier to refinance a home with one, too. VA loans don’t require borrowers to buy mortgage insurance and have lower interest rates than conventional mortgages. If you’re considering a refinance on your current VA loan, you’ll want to make sure to do your homework and look for the best lenders for your specific situation. To do this, you should weigh each lender on a variety of different factors, including origination and other fees, repayment schedules, interest rates, customer satisfaction and what the lender offers.
Two numbers reflect the cost of taking out a mortgage: interest rate and APR, or annual percentage rate. They both give you a pretty good idea of how much you pay, but not in the same way.
Interest rate vs. APR
Interest rate is expressed as a percentage of the loan amount and is either fixed or variable. Interest is basically the cost of borrowing money from a lender, and it’s what you’ll need to pay back on top of the principal in return for the loan.
On the other hand, the APR is the real cost of borrowing money with a loan, and includes the interest rate and other fees that comes with the loan. Like interest, the APR is also expressed as a percentage.
APR is determined by your lender. The federal government’s Truth in Lending Act requires lenders to disclose the loan’s APR in consumer loan agreements, but not all lenders include all fees in the advertised APR. For instance, inspection and appraisal fees may not be disclosed.
VA refinance pros and cons
Pros of VA loans
VA refinance rates: VA loan rates are consistently lower than other types of home refinance loans. Since the outbreak of the coronavirus pandemic, mortgage rates have dropped considerably overall, but VA loan rates are often still lower.
Affordability: The best thing about VA refinance loans is their affordability. With 100% financing, homeowners don’t have to come up with a downpayment. For first time homebuyers, that can be a welcome relief. However, you can still make a downpayment on your refinance to lower your monthly payments.
No mortgage insurance: Most other types of federally-backed loans, like FHA loans, require that you pay extra mortgage insurance, no matter how large your down payment is. VA loans don’t require any mortgage insurance (even if your credit is less than stellar), and you won’t have to pay it even with 100% financing. This makes it far easier to get into a new home.
VA refinances: The VA offers two refinance products: The IRRRL and the cash-out refinance. Both offer benefits like reducing your mortgage rate. The difference is that the VA cash-out refinance lets you borrow cash from the equity you have built in your home if you need it.
Cons of VA Loans
VA fees: All refinance loans have fees, and VA refinance loans are no different. Still, VA loans typically have just one fee, and that is the cost to close on the loan. It’s called the funding fee, and it’s a flat fee that is due at the time of closing.
VA appraisal: In order to guarantee your loan, the VA needs to know the home meets certain standards and is priced right. The appraisal process can delay getting your loan, and in some cases, it may cause the deal to fall through if the home can’t meet the requirements.
Limited to military members, veterans and spouses who qualify: The only people who can borrow for a mortgage with a VA loan are people who have served in the military, or, to a limited capacity, their spouses. This makes VA loans extremely limited, and while the terms can be awesome, you can’t take advantage of them unless you qualify.
8 best VA refinance rates of 2020
- Veterans United Home Loans: Best for jumbo loans
- Navy Federal Credit Union: Best for lowest rates
- USAA: Best for no origination fees
- Wells Fargo: Best for additional options
- PennyMac: Best for flexible repayment
- PNC Bank: Best for online applications
- US Bank: Best for personal touch
- North American Savings Bank: Best for customer service options
Veterans United Home Loans — Best for jumbo loans
Homeowners looking to refinance through Veterans United Home Loans will have three options to choose from — 15-year, 30-year and 30-year jumbo refinance loans. Rates on 30-year IRRRL streamline jumbo loans start at 3.815%, while current VA refinance rates for 15-year IRRRL streamline loans are at 3.013%. When you go through Veterans United Home Loans, you’ll have no requirement for out-of-pocket costs, no requirement to currently occupy the home and no appraisal requirement (in most cases).
Navy Federal Credit Union — Best for lowest rates
Nothing stands out more with Navy Federal than the IRRRL VA 30-year mortgage refinance rates starting as low as 2.971%. Compared to the rest of the industry, this is phenomenal. Rates are dependent on your creditworthiness, state of residence and loan size. Loan terms for Navy Federal refinances are available from 10 to 30 years.
USAA — Best for no origination fees
When you refinance a VA loan through USAA, you’ll skip out on a lot of fees. You won’t be charged an origination fee, title fee or VA funding fee. Additionally, USAA will cover the cost of the appraisal, which brings additional savings. The average savings from these fees for USAA members is $2,842, but your mileage may vary depending on your financial picture.
Wells Fargo — Best for additional options
Not completely sure you want to refinance with another VA loan? Wells Fargo offers nine different refinancing options to choose from, including the VA-specific choices. These options include 15, 20 and 30 year fixed rates, 7/1 and 5/1 ARMs, and four different jumbo refinance loans.
PennyMac — Best for flexible repayment
Most VA loan refinancing providers offer 15-year and 30-year options. PennyMac offers options from 10 to 30 years, including a 20 year option. This can provide the additional flexibility some borrowers need to fit their financial requirements. Rates at PennyMac are a little higher than the rest of the industry — interest rates vary and are currently between 2% and 4% APR for all products. In return, the company boasts more flexible eligibility requirements for applicants.
PNC Bank — Best for online applications
PNC Bank utilizes its Home Insight Tracker to let applicants track the entire application and approval process for their refinance online. Through the use of technology, you won’t be left in the dark about where you stand in the process. PNC also offers an easy rate calculator to determine your refinance rates for 30-year fixed and 15-year fixed loans. For a $100,000 loan in Tennessee, the APRs are currently about 3.446% and 3.690%, respectively. Of course, APRs vary greater depending on where you’re located.
US Bank — Best for personal touch
Getting your VA loan refinanced through US Bank is a streamlined process with a personal touch. The bank offers the ability to refinance over the phone or to search for a personal loan officer in your area. If you’re more interested in handling your mortgage refinance in person (or have a complex situation that requires explaining), US Bank has you covered.
North American Savings Bank — Best for customer service options
Getting help with any step of the VA loan refinance process is easy at North American Savings Bank (NASB). The company offers support via phone, contact form, online chat or in-person with a dedicated loan officer. Refinance rates will vary greatly depending on your financial picture, but 15- and 30-year rates come in very competitively at the mid- to high-2% range.
Compare 8 best VA refinance rates of 2020
|Lender||15-year APR||30-year APR||Key Benefit|
|Veterans United Home Loans||2.971%||2.815%||No appraisal required (most cases)|
|Navy Federal Credit Union||2.971%||2.971%||Several military specific refinance options|
|USAA||3.386%||3.463%||Covers the VA funding fee|
|Wells Fargo||3.188%||3.470%||Nine loan option choices|
|PennyMac||4.250%||2.500%||Mortgage learning center available|
|PNC Bank||3.690%||3.446%||100% financing available|
|U.S. Bank||3.114%||3.946%||Additional military-specific banking products|
|North American Savings Bank||2.547%||3.901%||Feature-rich mortgage rate calculator|
What is a VA refinance?
Refinancing is when you already own a home with a mortgage loan and elect to take out a new loan with more favorable terms to pay off and replace your old loan. This is often done through a new lender, but there are occasions in which a lender will let you refinance internally for a lower rate or new loan term.
A VA refinance is much like a regular refinance, but is used when the homeowner is a veteran or military member and has their current home loan through the VA mortgage loan program or qualifies to take advantage of the VA loan program. When refinancing a VA loan, you can choose to refi to another VA loan with new terms or refinance a conventional loan into a VA loan. The biggest benefits of VA loans is that they come with low interest rates, no required down payment and no requirement for mortgage insurance.
How to refinance with a VA loan
To refinance a VA loan, qualifying individuals can use the following two programs: VA Streamline Refinancing and VA Cash-Out Refinancing.
VA Streamline Refinance Program
Homeowners with an existing VA loan may qualify for a streamlined refinance program called the Interest Rate Reduction Refinance Loan (IRRRL). This program has a simple application process and it often can lower the borrower’s monthly payment. It also has a lower funding fee than a cash-out refinance — 0.50% vs 2.15% to 3.3%.
An IRRRL doesn’t require an appraisal or underwriting process, although the loan requirements can vary by lender. You can avoid out-of-pocket costs by choosing to roll the funding fee into the new loan or by going with a slightly higher interest rate to encourage the lender to cover your costs.
VA Cash-Out Refinance Program
A VA cash-out refinance loan is designed to allow veterans with an existing VA or conventional loan to use their home equity to fund home improvements or other major purchases. It can also be used to refinance your conventional mortgage into a VA loan. You won’t necessarily receive cash back, though, even though this scenario would fall under the VA cash-out refinance program. In fact, not all lenders offer this option due to internal rules, but many will allow you to refinance up to 100% of your home’s value.
VA refinance vs. other types of refinancing
VA refinance vs. conventional refinance
If you want to refinance the VA loan you already have, you should know that you are not required to do so with another VA loan. Using a conventional refinance may be an option, especially if you can get a better rate by using a traditional lender. Many lenders will not let you refinance 100% of your home with a conventional mortgage, however, which is sometimes an option with a VA loan refinance.
For example, USAA allows you to refinance 95% of your home with a conventional refinance instead of 100% with a VA loan. However, the APR on a 30-year fixed loan with the company is 4.138% for a conventional and 3.463% for the VA option. USAA doesn’t offer FHA or USDA loans.
VA refinance vs. FHA refinance
Unfortunately, you won’t be able to use an FHA refinancing program to refinance your VA loan. You can only refinance using an FHA loan if you currently have an FHA mortgage. If you have an FHA loan and want to refinance with a VA loan, you can utilize some forms of VA refinancing, but not the IRRRL format. The upside is that rates on VA refinances are typically lower than FHA options.
Additionally, if you have a conventional loan, you can apply to refinance through the FHA Secure program. Moreover, those with FHA or conventional loans can apply for an FHA 95% cash-out refinance and withdraw a portion of their equity. When comparing VA and FHA loan options, lenders will often accept borrowers with lower credit scores (down to 580) for FHA loans while most want to see at least 600 to 620 on VA loans. When it comes to the lowest interest rates, the lowest up-front costs and the lowest cost for insurance premiums, VA loans take the cake. If you can qualify for VA loans, this type of loan is usually the better route to take.
VA loan refinancing vs. USDA refinance
The United States Department of Agriculture (USDA) also offers a lineup of refinancing options, including a streamline refinance for borrowers with existing USDA loans for refinancing without a new appraisal. There is a guarantee fee that’s similar to the funding fee for VA loans and it can also be rolled into the loan amount. While this program is beneficial for those with USDA loans, there is no cash-out option and the rates are often higher than VA loans.
VA refinance rates today
As of September 2020, mortgage rates overall have dropped to record-breaking rates in reaction to the COVID-19 pandemic. For VA homeowners, this means it’s a great time to take advantage of IRRRLs and all-time low interest rates. Freddie Mac reported all-time low rates including 2.87% for 30-year fixed-rate mortgages and 2.35% for 15-year fixed-rate mortgages.
The final word
If you’re a member of the military community, the VA loan refinance program can potentially save you a substantial amount of money over the life of your loan. VA refinancing loans are backed by the government so private lenders are able to offer more favorable terms to VA borrowers, but each lender is different. If you think you may be able to save by refinancing or want to cash out some of your equity, compare at least three VA loans to find the best deal.