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VA refinance for building equity faster

VA-eligible borrowers whose priority is to own their homes outright or build equity more quickly may want to consider refinancing with a 15- or 20-year VA-guaranteed mortgage. Are these high on your priority list for considering a VA refinance loan?

• I want to build equity in my home faster

• I want to repay my loan and own my home in less time

• I want to obtain a lower interest rate than can be obtained with a 30-year mortgage

A reduced term VA refinance loan may enable you to cut your mortgage duration by as much as half. When market conditions are right, a VA-eligible borrower can reduce the amount of time it takes to build equity in the home and even own the home outright faster. Using the VA refinance program, a 30-year mortgage can be reduced to 20 or even 15 years.

Reducing the term of a mortgage typically leads to higher monthly payments. However, when interest rates are low, the switch from a 30- to a 15-year mortgage can be less drastic than many may think. Consider each of these examples of $250,000 mortgage amortizations:

• 30-year loan at 7 percent = $1,663 monthly or total of $598,772 over time

• 15-year loan at 5 percent = $1,977 monthly or total of $355,857 over time

Surprisingly, at just two interest points lower, a 15-year mortgage at 5 percent can cost an existing 30-year borrower at 7 percent just over $300 more per month. The savings, when one considers the total payments over the duration of each mortgage, can be astounding. The 30-year borrower making minimum payments at 7 percent could end up paying nearly $250,000 more over time than the 15-year borrower at 5 percent. That's a quarter-of-a-million dollars! The benefits gained by refinancing to a lower term can vary based on individual loan characteristics. Taxes and insurance are not included in these examples.

Going from a 30- to a 15-year mortgage is not for everyone. Borrowers should always consider the costs to refinance and make sure they can afford a potentially higher monthly payment before making the adjustment. Borrowers with current 30-year mortgages at higher interest rates may stand to benefit the most from a reduced term at a lower rate. Other advantages to VA refinancing can include:

• Up to 100 percent loan-to-value

• No private mortgage insurance

• No prepayment penalties for early payoff

For more information about VA refinancing with a federally-backed VA home loan, talk with a seasoned VA mortgage professional.

Please see your local county veterans service officer if you have any questions. You can contact your local VSO at (218) 631-7617 or by e-mail at As always, have a great week.