Allowing your ARM, or adjustable-rate mortgage, to reset could be a tough financial choice. It depends on where rates are at when your mortgage rate adjusts. Some people get lucky and their rate stays the same or even lowers. Others are not as lucky and end up paying a much higher rate when they least expected it.
Before your adjustable-rate mortgage resets, you have a few choices. You can choose to do nothing and see what happens; you can refinance into another ARM or you can choose a fixed-rate loan. If you have a current VA loan, you can do any of these things with very little verification.
Keep reading to learn how this is done.
The VA Streamline Refinance Explained
The VA streamline loan allows veterans with a current VA loan to refinance without verifying any of the following:
- Home value
It sounds like just anyone can qualify; however, you do have to have a timely mortgage payment history and a net tangible benefit.
The VA considers the timely mortgage payment history as on-time payments for the last 12 months. If you have one 30-day late payment, you may still get approved. It depends on the lender.
The net tangible benefit means there is a benefit to your refinance. In this case, refinancing from an ARM to a fixed rate would be a great benefit. If you choose to take another adjustable-rate loan, it could be a benefit, if you’ll save money with a lower interest rate.
Basically, the lender and the VA want to see that you have some type of savings or safety net from the refinance. They want a benefit because it costs money to take out another loan, plus you restart your term. Unless you take a shorter term than what exists on your current loan, you are starting over, which may mean adding more years to the term of your loan.
Refinancing Your VA Loan
If you have a VA loan, you’ll just need the following to prove to your lender that you are a good risk
- Contact information for your employer to prove you are employed – This doesn’t have to be with the same employer as when you took out your original VA loan
- Proof of your current mortgage – You’ll need a current mortgage statement and contact information for your current lender
- Your current note – This gives the lender the VA case number for the lender to confirm your eligibility for the loan
Once you are eligible, you’ll then choose the type of refinance. You’ll have some choices to make at this point.
What Should You Choose?
Now it comes down to what should you choose? Do you take another ARM? Do you choose the fixed rate? Here’s what you may want to consider:
- How long are you staying? This is an important factor. If you will move soon, another ARM could work to your benefit. You may get a lower rate that won’t adjust before you move. This saves you money on interest in the long run, helping you make more profit on the home when you sell.
- What can you afford? Are you trying to get out of the adjustable rate because your income changed and you want more predictability? If so, a fixed rate may be a better choice. If you can handle the ever changing rates and like the low introductory rate, the adjustable rate may save you more for the first few years.
- What are your future plans? Do you see yourself changing jobs in the future? Maybe you are a two-income family but plan to go down to one due to an expanding family or retirement. These are things you must consider, as the ARM is not predictable once it resets.
You can refinance your ARM whenever you want, before it resets or even afterwards. It’s obviously the smarter choice to be proactive so that you don’t have to deal with the changing interest rates. But, if you don’t, you still have the option. In fact, you may have a higher net tangible benefit and a greater chance of VA streamline loan approval if the rate does reset because you may have a larger savings.
Shop around with different VA approved lenders to find the best deal for you. Each lender will have different requirements you must meet. Figure out which lender will not only approve you, but that will also give you the best rate and closing costs on the loan.Click to See the Latest Mortgage Rates»