Letter about home refinancing draws caution from HH broker

I would like to comment on the Letter to the Editor date May 5 (regarding refinancing home loans through the VA).

After reading, I have to say not so fast. Refinancing is not for everyone and is not something to jump in to blindly. Before seeking out a refi one has to answer a few questions. The most important one is: Are you planning on staying in the home at least five more years? This fundamental question will point to the practicality of a refi.

You have to compare the fees to refi to the actual savings. Whatever it costs to refi, it is a loss that has to be paid before any savings are realized. So if it costs $8,000 to refi and your monthly savings are $75.00, it will take 107 payments to be rid of the fee and then you can see savings. That is well over eight years.

The first place to look when you want to refi is the bank that holds your mortgage. They may have a “streamline” program to refi. This will save you many of the costs such as appraisal and survey fees. Those two alone count for around $1,000.00 in refi fees. Also be prepared to change the term of the note to 15 years. The shorter the note the better chance you will have to save a lot of interest. Fees for refi are generally added to the balance of the note at the time of the refi.

This leads to the second question: Are you in a position to absorb the refi fee. If you have a VA guaranteed loan, more than likely your VA funding fee was added to your mortgage and it takes a number of years to get that paid off so that you can begin building equity. This usually takes two or three years.

At this point, if you refi, you are once again going in the red and can stay there for a lot longer than a few years. The third question is: What is the likelihood that you will be selling in the next five years. If the answer is very likely, refi is definitely not for you. When you put your house on the market you will have a whole new set of fees that can easily pass ten thousand dollars. So who does a refi fit? It is a homeowner that has substantial equity in the home to absorb the fees from the refi and potential sale of the home. A safe number is 20% of the current market value of the home. It is the homeowner who is in their retirement home. That is planning to stay at least ten more years. It is the home owner that will realize an interest rate decrease of at least 1.25% and can move to a fifteen year note.

Please, do your homework before you jump. There are many offers out there that will tell you that you will have no out of pocket expenses, and you can even skip a payment. That is very true, but what is the whole truth? Be wary of the offers that come in the mail or emails. Talk to someone local and face to face in addition to a VA loan officer.