Mortgage refinance rates have been rising but are still considered low compared to historical standards. VA loans typically have even more attractive interest rates than other loan types, giving VA borrowers an opportunity for potential savings. Refinancing a VA loan can save borrowers hundreds of dollars a month and thousands over the loan’s lifetime.
Here is how to make sense of a VA loan refinance.
Expert Take on Current VA Refinance Rates
Mortgage rates are expected to move around as different factors tug at the market. Pushing them up are factors like inflation, which at 7.9% in February was the highest in 40 years, and anticipation that the Federal Reserve will raise its short-term interest rate to combat that inflation. The Russian invasion of Ukraine has brought new uncertainty to financial markets, causing bigger swings on a daily or weekly basis. “Everything depends on what happens everywhere,” says Linda McCoy, board president of the National Association of Mortgage Brokers. “Too many variables can change the rates. Too many things can happen.”
Generally, experts expect rates will rise throughout 2022, although with plenty of ups and downs along the way. More certainty might come once the Fed begins raising rates, which is expected to start this month. “Once we see [the Fed’s] first move, you might see much less volatility,” says Jennifer Beeston, senior vice president of mortgage lending at Guaranteed Rate. “If the Ukraine war wasn’t going on, I would be estimating that next week would even things out. But with the Ukraine war I think we’re going to keep on seeing these swings.”
What Today’s VA Refinance Rates Means for You
If you’re looking to refinance to save money by getting a lower interest rate, you can still do so if your current rate is higher than what you’d be able to get on the market today. “If you can lower your rate, regardless of what’s going on in the market, and it’s going to save you money, cool,” Beeston says.
A cash-out refinance could make sense depending on what you plan to do with the cash and what your old and new interest rate looks like. Beeston says you should be careful not to take a step up in an interest rate just to get a little bit of cash out – that could cost you more in the long run. But if you’re considering refinancing to consolidate higher-interest debt, like credit cards, that could save you a significant bit of cash over time.
With a VA cash-out refinance, there are a few additional considerations. If you’re switching from a conventional mortgage to a VA loan, then you may have the added benefit of being able to get rid of mortgage insurance. However, the VA funding fee and your interest rate will be higher with a cash-out refinance compared to a VA Interest Rate Reduction Refinance Loan (IRRRL). A cash-out refinance can be a useful tool because it can be an affordable way to consolidate high-interest debt or fund home renovations, but you’ll want to run the numbers first.
Homeowners looking to take advantage of rising home values by turning their equity into cash may want to consider a conventional cash-out refinance. For borrowers who want to save on interest and reduce their monthly payments, an IRRRL can be an affordable and easy way to refinance.
Before refinancing, you’ll want to ensure you’re saving enough on your interest rate or monthly payment to outweigh the upfront closing costs. You also want to pay attention to your refinance loan term. If you extend your loan term, not only are you adding years onto your mortgage, but you could end up paying more interest as well.
So if you’re looking to secure a better rate, now could be the right time. It’s always good to explore your refinancing options and compare different types of loans from at least two to three mortgage lenders.
History of the 30-Year Fixed Mortgage Rate
This chart tracks the 30-year fixed mortgage rate, which differs from the VA refi rate. However, all rates typically follows a similar track. Therefore, the history of the 30-year fixed rate can provide a snapshot of how today’s VA refi rates compare with the past two decades. This chart uses data from a survey by Freddie Mac that differs slightly but generally tracks with the Bankrate survey used by NextAdvisor. Following the history of the 30-year fixed mortgage rate illustrates that while mortgage rates are up from the record lows of the past two years, they still aren’t very high by historic standards. In the past two decades, rates as high as 8% are not unheard of.
Remember that while rates are still favorable for homebuyers, what’s most important for refinancing is what rate your existing mortgage has. If you took out a mortgage when rates were 5% or higher, you could stand to save significant money if you refinanced into a new loan with a rate around 0.75%-1% lower.
In fact, the number of “high-quality refinance candidates” stands at 3.8 million, according to the latest data provided by mortgage technology and data provider Black Knight. These homeowners all have 30-year mortgages with rates 0.75% or more above average mortgage rates. Refinancing with a 0.75% interest rate reduction can provide significant homeowners savings: An average of $276 a month, according to Black Knight.
What Are Today’s VA Refinance Rates?
On Saturday, October 01, 2022 according to Bankrate’s latest survey of the nation’s largest mortgage lenders, the average 30-year VA refinance rate is 6.280% with an APR of 6.490%.
Current VA Refinance Rates
|30-Year Fixed Rate||7.040%||7.050%|
|30-Year FHA Rate||6.190%||7.060%|
|30-Year VA Rate||6.280%||6.490%|
|30-Year Fixed Jumbo Rate||7.050%||7.060%|
|20-Year Fixed Rate||7.060%||7.080%|
|15-Year Fixed Rate||6.220%||6.260%|
|15-Year Fixed Jumbo Rate||6.230%||6.260%|
|10-Year Fixed Rate||6.360%||6.410%|
|5/1 ARM Rate||5.190%||6.760%|
|5/1 ARM Jumbo Rate||5.080%||6.490%|
|7/1 ARM Rate||6.040%||6.400%|
|7/1 ARM Jumbo Rate||6.180%||6.280%|
|10/1 ARM Rate||6.220%||6.360%|
|30-Year Fixed Rate||7.060%||7.070%|
|30-Year FHA Rate||6.220%||7.070%|
|30-Year VA Rate||6.270%||6.400%|
|30-Year Fixed Jumbo Rate||7.060%||7.080%|
|20-Year Fixed Rate||7.040%||7.070%|
|15-Year Fixed Rate||6.160%||6.200%|
|15-Year Fixed Jumbo Rate||6.200%||6.220%|
|10-Year Fixed Rate||6.360%||6.400%|
|5/1 ARM Rate||5.250%||6.910%|
|5/1 ARM Jumbo Rate||5.020%||6.940%|
|7/1 ARM Rate||6.010%||6.460%|
|7/1 ARM Jumbo Rate||6.180%||6.290%|
|10/1 ARM Rate||6.180%||6.390%|
Rates as of Saturday, October 01, 2022
About These Rates
These rate averages are based on weekday mortgage rate information provided by national lenders to Bankrate.com, which like NextAdvisor is owned by Red Ventures. These averages provide borrowers a broad view of average rates that can inform borrowers when comparing lender offers. We feature both the interest rate and the annual percentage rate (APR), which includes additional lender fees, so you can get a better idea of the overall cost of the loan. The actual interest rate you can qualify for may be different from the average rates quoted in our rate table. But these rates are useful for giving you a benchmark to use when comparing loan offers by giving you a sense of how the type of mortgage and the length of the repayment term impacts your interest rate and APR.
VA Refinance Pros and Cons
A VA refinance loan can be an excellent way to reduce your interest rate and monthly mortgage payments. But these loans also have unique fees and restrictions to be aware of.
Streamline refinance loans usually don’t require an appraisal or credit check
No private mortgage insurance (PMI) is required
Easier to qualify for with a lower credit score
You can borrow a higher percentage of your home’s value compared to conventional cash-out refinance loans
Upfront VA funding fee of 0.5% to 3.6%
You can only use a VA streamline refinance with an existing VA loan
Must meet the minimum military service requirements or currently have a VA loan
Cannot refinance rental properties, in most cases
VA Loan Refinance: Frequently Asked Questions (FAQ)
Who qualifies for a VA refinance loan?
To qualify for a cash-out VA refinance loan, you must provide a Certificate of Eligibility (COE) obtained from the VA. You’re eligible for a COE if you weren’t dishonorably discharged and you meet the minimum military service requirement, which is generally satisfied within 90 continuous days of active duty service. A VA streamline refinance doesn’t require the borrower to provide a COE. But it’s likely you already have one since you can use this loan only when you already have an existing VA loan.
VA cash-out refinance mortgages are available only for primary residences, so you can’t use this loan for a property you don’t live in. With an IRRRL, you can refinance a home loan for a property you no longer live in, but you must have previously lived in the home.
The VA has no minimum credit score requirement for the mortgages it insures, but the lenders that provide the loans will have certain baseline standards. While lenders’ underwriting guidelines vary, you’ll typically need a minimum credit score of 620 or higher. And to qualify for the best refinance rates you’ll want a credit score of at least 740.
What is a good VA refinance rate?
The refinance rates offered to you will greatly depend on your personal circumstances. Your credit score, loan balance, and property location can all influence your interest rate. But at the end of the day a good refinance rate is an interest rate that can help you get closer to your financial goals.
In general, current mortgage refinance rates are relatively low. If you can secure an interest rate anywhere near 3%, you’re getting a low interest rate. However, whether or not it’s a good rate depends on other factors, such as the interest rate on your current loan and the fees you have to pay to get that rate.
If your goal is to reduce your interest rate to save money, but you can only refinance to a rate that’s 0.25% lower than your current rate, then it may not be worth it. Sometimes what looks like a low rate can be saddled with extra fees, such as discount points, which reduce the rate you pay but greatly increase your upfront costs. So it’s worth taking the time to look at both the rates and fees while putting them in the context of your goals.
How much does a VA refinance cost?
Refinance loan closing costs average 3% to 6% of the loan amount, which can add up to thousands of dollars for the average mortgage refinance. The exact fees you pay will vary by lender, so it’s important to shop around and compare Loan Estimates from a few lenders.
Which type of VA refinance loan you use will also impact the fees you pay. All VA loans come with a funding fee unless you can qualify for a funding fee waiver. For VA streamline refinance loans, the funding fee is 0.5% of the loan amount or $500 for every $100,000 borrowed. One advantage of a streamline loan is you may avoid paying for a new appraisal, which can cost $300 to $600.
A VA cash-out refinance will be more expensive than a streamline refinance. Not only do cash-out refinance loans typically have higher interest rates, but the funding fee is also increased. If your refinance is your first use of your VA loan benefits, the funding fee is 2.3% — and 3.6% for each subsequent refinance.
How do I refinance a VA loan?
The process of refinancing a mortgage is similar to taking out a mortgage to purchase a home; you’ll have to find the right lender and go through the mortgage underwriting process. But because you’re not purchasing a home, the process will be more simple and require a bit less paperwork.
- Determine what type of loan you need
There are several factors that go into determining which type of VA refinance loan is the best for you. A streamline, or IRRRL, loan is the easiest and most affordable option. It has a lower funding fee and fewer verification requirements. But there’s a catch: You’ll need to refinance from a VA loan, so if you have a USDA loan or a conventional mortgage, you’ll need to use a VA cash-out refinance loan instead.
- Shop around for the best VA-approved lender
Most VA refinance loans are not issued by the Department of Veterans Affairs. Instead, traditional lenders issue mortgages that are guaranteed by the VA. So you’ll need to find banks, brokers, and credit unions that offer VA-backed mortgage loans.
Once you’ve found a few lenders, you can compare rates and fees. You should also find out how often the lender works with VA loans. VA-backed mortgages have guidelines that are different from other types of home loans, and working with an experienced loan officer can make the process much easier.
- Provide documentation to your mortgage lender
The lender will need to verify your income, assets, credit score, and debt-to-income ratio (DTI). Have pay stubs, W-2 forms, bank statements, and loan statements ready to go ahead of time. Your lender will also need to verify your employment status. These days lenders are more diligent when verifying employment, sometimes even confirming you are still employed on the day of closing.
If you qualify for an IRRRL, some lenders will require much less paperwork. As long as you’re up to date on the payments with your existing VA loan and you haven’t had any late payments in the past year, you may not need to verify things like your income or credit score.
- Close on the refinance loan
During the closing process, the lender will validate your ability to repay the loan by reviewing the documentation you provide, if necessary. This is also when the bank will usually require an appraisal to ensure it isn’t lending more money than the property is worth. However, with a VA streamline loan, an appraisal may not be required.
When you refinance a mortgage, you will be on the hook for closing costs, but you won’t have to pay what is generally the biggest out-of-pocket expense on a mortgage – a down payment.
How do I find the best refinance VA loan rates?
To find the best VA refinance loan rates, you’ll need to shop around to compare lenders. Lenders offer lower refinance rates to borrowers they deem less risky, which usually means having a higher credit score and more home equity. But each lender will evaluate your situation differently, so it pays to look at refinance mortgages from multiple lenders.
Your loan term will also impact the interest rate. Refinance loans with shorter terms will typically have lower rates. So a 15-year refinance loan will have a better refinance rate than a 30-year refinance loan.
Who sets VA loan rates?
Most VA loans (with the exception of Native American Direct Loans) are originated by private lenders rather than VA itself. Because of this, VA loan rates are set by private lenders, not the federal government. Mortgage refinance rates, whether for VA loans or conventional loans, depend on market factors as well as personal factors, like your credit score, income, and loan-to-value ratio. Different lenders may offer different rates, so you should always compare offers to find the best deal.
How do VA loan rates compare with the rest of the market?
Like all mortgage rates, the VA loan rate you get will depend on the lender and your personal financial profile. You’ll typically need a good credit score, stable income, and a low loan-to-value ratio to get the best rates. However, exact rates may vary by lender, so make sure you’re shopping around to get the best deal.
What is a VA refinance loan?
A VA refinance loan is a mortgage that replaces your existing home loan and is backed by the U.S. Department of Veterans Affairs. Refinancing your mortgage with a VA loan can be an easier process compared to a conventional refinance — but it’s not an option available to anyone. To qualify for a VA refinance loan, you’ll need to meet minimum military service requirements, in addition to the lender’s borrowing guidelines.
What are the different types of VA refinancing?
There are two main types of refinance loans backed by the VA: VA streamline loans and VA cash-out loans.
1. VA streamline refinance loan
As the name suggests, a VA streamline refinance typically requires less paperwork than other refinance options. You may even be able to refinance without a property appraisal, credit check, or income verification. However, for VA streamline refinance loans, lenders may look at your mortgage payment history and require no late payments in the previous 12 months.
2. VA cash-out refinance loan
VA cash-out refinance loans are slightly less restrictive than IRRRLs. You can refinance any type of mortgage, such as FHA loans or conventional mortgages, into a VA cash-out refinance loan. With a VA cash-out refinance, you can take out a loan for more than what you currently owe on your existing mortgage loan and get the difference back in cash. Even if you don’t get cash back, any VA refinance loan other than a streamline refinance is considered a VA cash-out refinance.
A cash-out refinance can be a good way to consolidate high-interest debt or finance a home improvement project. With a VA cash-out refinance, you can finance a larger portion of your home’s value (up to 100% depending on the lender) compared to a conventional refinance, which is typically capped at an 80% loan-to-value (LTV). But a cash-out refinance can leave you with a larger monthly payment and usually will have a higher interest rate than other refinance loans.