Refinancing your VA Loan

I received an "urgent" notice in the mail this week. It was addressed to those of us who have VA mortgages. With rates as low as 2.75%, no cash up front, no processing fees, among other promises, I thought, maybe I should investigate. My current mortgage rate is 3.75%. I could lower my monthly payment nearly $200, based on their information, if it was true. Turns out the facts speak differently.

First thing I did was go to Bank Rate and Barron's magazine to check the national average for 30-year fixed mortgages, As of this writing, it was 3.685%. This made the "rates as low as" offer suspicious.

I then reached out to a trusted source, my mortgage broker, Mary Kennedy at PrimeLending, for my current VA mortgage. Here's what she said:

"Throw all those away!!! You are good at 3.75 %!! Those advertisements have you paying lots of fees and points and they add it all onto your loan amount but they make it sound so good!! I don’t think it will ever benefit you to refinance!"

I then spent a little time on Google and came across some articles from the VA. Below are some snippets from that article. My conclusion: These offers are a scam. 

The Consumer Financial Protection Bureau and VA are issuing their first, “Warning Order,” to service members and Veterans with VA home loans. If you have a VA home loan, then there is a good chance that you have already come into contact with unsolicited offers to refinance your mortgage that appear official and may sound too good to be true.

Many of these solicitations promise:

• Extremely low interest rates
• Thousands of dollars in cash back
• Skipped mortgage payments
• No out-of-pocket costs
• No waiting period

Don’t be fooled. Before responding to any unsolicited offers, here is what you need to know. 

Some lenders marketing VA mortgage refinances may use aggressive and potentially misleading advertising and sales tactics. Lenders may advertise a rate just to get you to respond, or you may receive a VA mortgage refinance offer that provides limited benefit to you while adding thousands of dollars to your loan balance. 

How will you know if the offer is too good to be true? Here are some offers and tactics to watch out for: 

Offers to skip one or two mortgage payments – Lenders sometimes advertise this as a benefit of a VA mortgage refinance; in fact, VA prohibits a lender from advertising the skipping of payments as a means of obtaining cash in an Interest Rate Reduction Refinance Loan (IRRRL) . Certain lenders nevertheless use this as a selling point when they are unable to offer cash-out or a significantly lower interest rate.

Offers to receive an escrow refund – Lenders may promise that you will receive a certain amount of cash as a refund from your escrow account; however, the amount you may receive is dependent on how much is left in your account at the time the loan closes, which may be much less than you were promised. We have heard from service members who were promised a certain refund amount and received a much lower amount at closing. We have also heard from service members who have experienced problems with their new escrow accounts after closing and have had to make higher monthly payments to make up for the shortfall. 

Low-interest rates without specific terms – Lenders may advertise a low-interest rate to get you to respond to an advertisement. You might assume these rates are for a 30-year fixed-rate mortgage, but in many cases, the rates are for a 15-year fixed-rate mortgage or an adjustable-rate mortgage, or you may have to pay discount points to receive the advertised rate. 

Aggressive sales tactics – Certain lenders may try to push you into a VA mortgage refinance. For example, you may be called by a lender multiple times or receive VA mortgage refinance offers in the mail that look like a check or bill to get you to open it. You may be pressured to refinance your VA loan only a month or two after you closed on your current VA loan. 

Be prepared to: Understand that certain advertised benefits, such as no out-of-pocket closing costs, skipped mortgage payments, and escrow refunds, are costs that are generally added to your loan and increase the overall principal balance. These are all red flags that may indicate that the loan is less likely to benefit you. Before you proceed with a VA mortgage refinance, be sure to consider the long-term and short-term benefits and consequences of refinancing your loan.

More information: Interest Rate Reduction Refinance Loan.