Questions About The VA IRRRL Program

William Bryant:

I was wondering if someone could explain what is the loan discount fee and the difference between points?  And is 2% in loan discount fee's good?

Points are generally in 2 categories:  The origination fee [the first 'point'] which is according to accounting standards credited to the lender's income at the time of origination of the loan, and discount points paid to get a lower rate.  Discount points are amortized by both the lender and the borrower for the term of the loan for tax purposes.  I stand by my statement on paying points on refinances.  There is a point of diminishing returns on paying them.  And it is the rare occasion indeed when a refinance comparison, given the average life of a mortgage loan by sale or refinance, that paying any is justified.

Is Loan discount fee the same thing as discount points?

I want to refinance using the VA IRRL.  Is it possible for rates to decrease to 4%-4.5%?  If so, when will is it likely to happen?

In response to MisterVA's post about discount points I would agree if we were not currently in a new real estate environment.  Here's the logic:

Conventional Wisdom (MisterVA)

Avg Home is sold or refinanced every 4-7yrs / refinance to get cash-out often / interest rates could go down

The New World Order Wisdom (Clem)

VA loans are typically 100% loans and we're in a zero or negative appreciation market. Selling may not be an option in 4-7yrs.

VA loans are typically 100% loans and we're in a zero or negative appreciation market. Getting cash-out anytime soon isnt' an option.

Current rates have the potential to be the lowest of a lifetime (yep I said it, lifetime). So refinancing when rates go down again is very unlikely.

So with that being said, wouldn't it be of benefit to look at paying discount points when possible (of course if it makes sense) than to say it's a rare occasion?  We're not in normal times with ever increasing home values that open up all the refinance and sale and move up opportunities of the past. The truth is many more people will be staying put in their homes for a much longer time.  At least ask your broker. You could be in this house for the rest of your life. Why pay more then absolutely required.

Thankyou for the thoughtful and civil discussion between Clem and MrVA, it gives me much to think about.

I've been running the numbers for my situation and I've been coming up with breakeven points of about 2 years.   I guess I'm having a hard time with that and would be comfortable saving less money with a shorter break even, perhaps no break even at all.

So my question is, in the VA IRRRL world, do lenders exist that do zero-cost NPNF loans?  Does the VA allow this?

I  find it a little difficult searching the web for lenders that would do such a specific loan product.

Chris I do a good bit of VA loans in the Charleston market and offer borrowers a few options.  The first option is a loan with our standard fees of 1% origination and a processing fee.  The scond is with a 2 point buy down in the rate.  This lets the borrower see what the discount get get them in payment relief.  The third is a NPNF loan.  Understand that it costs money to lend money.  The NPNF option is going to carry a higher rate than the other two because the lender has to make their money somewhere.  Also, VA loans tend to be more expensive loans to get done so the added expense increases the rate on the NPNF more than it would on a conventional loan.  You need to ask your lender to provide you with these same options and then see which one makes the most sense for you.  if you have a smaller loan amount of $150K or less and or do not plan on being in the home long then paying points does not make sense.  If you have a larger loan amount and/or plan on being there for an extended period then paying points will make sense.  As Clem stated we are in a once in a lifetime rate environement right now and you want to make sure you optimize your position.   Alot of VA borrowers are not understanding that historically VA rates have been higher than conventional rates but now they are right in line with them.   It all boils down to simple math.  What is it costing you to refinance divided by your savings equals the number of months it will take you to break even and get ahead.   Hope this helps....

Christopher,

I think there are 2 things you should have in mind when making your decision.

1. How long do you plan to stay in the home.
2. VA Loans are assumable, would the new rate you refinance into make your home more marketable when it comes time to sell.

I've always been a fan of no cost VA refinance loans (or as close to no cost as you can get) but in today's rate market there is a VERY real possibility that ou could refinance into a rate that simply isn't seen again.  Why that's important is if there is a cost associated with buying down your rate to say 4.50% vs. taking a no cost refinance at 5.50% it will be worth while to take the 4.50%.  You're going to see a large swing in cost vs. no cost because today's market simply doesn't have the back end yield to make it worth while for the lender and the consumer (banks are keeping it).

Just think about how long you're going to be there, you're real estate market and chance of resale to a veteran and you'll make the right choice.

Thanks, yes, I'll be doing the math and applying it to my situation. I understand the rate has to be higher to cover the costs.

I googled for "IRRRL and NPNF" and had a grand total of 3 hits; two from out of the country and one from an EDU domain so I wasn't sure this type of product even existed.

Now to find a lender in Texas...

My understanding of the odds of selling a house with the assumable loan is that they are pretty low.   There's LTV issues when it appreciates then a matter of finding a veteran ( not easy in Austin, TX ).

Can anyone cite a source for statistics on this?

I was wondering how many times can you refinance using the VA IRRRL? Example if you wanted to get an even lower interest rate.

William Bryant:

I was wondering how many times can you refinance using the VA IRRRL? Example if you wanted to get an even lower interest rate.

One thing to keep in mind is that if you continually refinance, there is a good possibility that you will not recapture back your outlay for closing costs in terms of payment savings.

Christopher Painter:

My understanding of the odds of selling a house with the assumable loan is that they are pretty low.   There's LTV issues when it appreciates then a matter of finding a veteran ( not easy in Austin, TX ).

 

Can anyone cite a source for statistics on this?

One thing to keep in mind is that the rate on the loan being assumed has to be attractive to the buyer.  That means it should be lower than market rates.  Veterans can assume VA loans, but so can non-veterans.  In the latter case, part of the entitlement remains until the loan is paid off.  If you have a 6% rate, you won't find any takers if current rates are 5% or lower, for example.  The buyer pays you the difference between the sale price and loan balance.  You would want to get a release from liability as well.  No source for statistics, but you could check with the Dept of Veterans Affairs for that info.

Please bear in mind that you must meet 2 out 3 criteria for a VA IRRRL:

1) You must save at least 1% on the interest rate if you are re-financing a fixed rate, less if you are re-financing an ARM

2) You must save at least $50 per month (principle and interest only)

3) You must re-coup your closing costs within 60 months.

I hope this helps.

Sincerely,

Michael E. Bradley

As long as you continue to improve rate or the term of the loan there is no limit.

Christopher Painter:

My understanding of the odds of selling a house with the assumable loan is that they are pretty low.   There's LTV issues when it appreciates then a matter of finding a veteran ( not easy in Austin, TX ).

I would keep in mind during that we've not had rates this low while assumptions were allowed.  There wasn't a significant reason to assume another loan and get a 2nd for the appreciation.

But what does it look like when you've got 4.50% and rates are 7.50%?

Christopher Painter:

I've been running the numbers for my situation and I've been coming up with breakeven points of about 2 years. 

That is a short break even time frame.  I am not sure why you are disappointed with it?  Are you planning on selling in the next 3-4 years?  If you aren't planning on selling soon, wouldn't you be disappointed if you spent several years paying more on your monthly payments than you had to?

try to find a lender that still doesn't require an appraisal

Moderator Note: Signatures available to Premium Members.

We have several that don't require appraisals. You shouldn't have a problem finding someone.

Hello.   I have a question about the IRRRL.  I keep getting offers in the mail concerning refinancing my VA loan.  One of the statements on these offers is the ability to skip two monthly mortgage payments.  How is this possible?  I have looked on the internet and while I continue to see these offers, there is no explanation as to how a homeowner can skip two payments.

I have a 5.875% interest rate and am starting to consider refinancing my home but the ability to skip two payments would definitely push me toward refinancing.

Thank you!

Tracy

Dear Tracy,

When you close on your re-finance anytime after the first of the month, your interest is calculated at closing for that month. That is month number 1

As for month number 2, you make your mortgage payment after you have lived in the house 30 days.

Let's say that you close on your home on October 3, 2009. Your payment, figured at interest only, is included in your closing costs for that month, October. Then you will live in the home all of November so your first house payment will not be due until December 1st, 2009.

Everything is included in your closing costs for that first month.

I hope this helps.

Sincerely,

Michael E. Bradley