Reduced interest rate saves veteran big money

Mortgage banker/broker:

Tom Banducci

Property type: Single-family residence in Oakland

Loan type: VA Interest Rate Reduction and Refinance Loan (IRRRL)

Term: 30-year fixed

Loan amount: $754,000

Appraised value: $784,222

Interest rate and pricing: 3.75 percent, no points and an $18,261 credit toward closing costs.

Backstory: VA loans offer veterans the opportunity to own a home with no money down and no monthly mortgage insurance. It’s a great program that every entitled veteran should take advantage of.

Banducci helped past clients with a VA loan purchase their current home; they contacted him regarding information on a VA Interest Rate Reduction Refinance Loan in the hopes of lowering their monthly payments. The VA IRRRL program allows a veteran to refinance their existing VA loan with a reduced funding fee and, in most cases, without a new appraisal.

Since Banducci’s clients had purchased their home less than five years ago, no appraisal was required and the lender used their original purchase price for their home’s value.

The client’s current VA loan had an interest rate of 4 percent and wanted a new rate of 3.5 percent to proceed. Initially, when Banducci checked rates for the IRRRL, it didn’t seem like market rates would be low enough to warrant a refinance, since a rate of 3.5 percent, for example, would require the borrowers to pay a discount point of $7,630 on top of the closing costs and VA funding fee.

The veteran and his wife wanted to roll the fees into the new loan, but this would have required the new loan amount be approximately $12,000 more than their current principal balance. In other words, not a good deal for a $211 monthly savings that would have taken over 110 months to break even.

Upon further examination, Banducci proposed a new rate of 3.75 percent instead. This rate, while only .25 percent lower than their current mortgage, allowed for a no point loan with an $18,261 credit toward the client’s closing costs. As a result, Banducci only needed to add $1,520 to their existing principal balance, and was able to pay for the VA funding fee, all the closing costs and use the remaining lender credit to prefund their new property tax and hazard insurance impound account. This solution cost his client zero out of pocket expenses and saved them $253 per month from the first payment.