Avoid costly refinancing mistakes by understanding key pitfalls. Mistakes to avoid when refinancing a VA mortgage include choosing the wrong loan type, ignoring closing costs, and resetting your loan term unnecessarily. Always compare multiple lenders, check for hidden fees, and calculate long-term costs before refinancing. Know the difference between an IRRRL and a cash-out refi to avoid overpaying. Smart refinancing means saving money, not just lowering payments—plan wisely to maximize your VA loan benefits.
1. Not Knowing the Real Reason You’re Refinancing a VA Loan
Refinancing a VA loan can either help or hurt you. It all depends on your goal.
Here’s what I mean:
- If your goal is to lower your monthly payment, you need a reduced interest rate that saves you more than the refi costs.
- If you’re doing a cash-out refi to pay off debt, but you end up paying higher interest over 30 years—did you really save?
- If you want to shorten your loan term, great. But be ready for a possibly higher monthly obligation.
Too many jump into refinancing a VA loan because someone told them their current loan is “bad.” Bad for who? You? Or the lender trying to collect new loan fees from you? Figure out if refinancing actually benefits your situation. Sit down. Do the math. We’ve seen VA refinance pros and cons up close. Don’t refinance just to refinance.
2. Saying Yes to the First Lender Who Calls You
This one kills me. I know you’re busy. But saying yes to the first lender offering you a refi is like buying the first car you test drive—even if it leaks oil and smells like regret.
Comparison shop at least 3 to 5 lenders. Get your quotes, put ’em side by side, and really look at:
- Interest rate: Obvious, but don’t chase the lowest rate if fees are too high.
- Loan origination fees: This is where they sneak in big chunks.
- Closing costs: Anything over 3% of your loan amount? Ask why.
- Points: If you’re paying points to lower the rate, calculate how long until you break even.
Here’s the kicker… Not all lenders even do a good job with VA loans. Choose one that understands VA refis, or you’re piling on more future headaches.
We’ve broken down lender comparison strategies over on the blog so you can eyeball what matters fast.
3. Confusing IRRRL with Cash-Out When Refinancing a VA Loan
There are two main ways of refinancing a VA loan:
- IRRRL: Interest Rate Reduction Refinance Loan
- VA Cash-Out Refinance Loan
IRRRL is for when you just want a lower rate or faster payoff—no extra cash in your pocket. It’s usually faster, cheaper, and skips the big paperwork load. Cash-out? You’re pulling money from your home’s equity. Bigger deal. Requires credit check, home appraisal, income review—the works. Too many veterans go in asking for one, when the other would’ve saved them money. Worse… Some lenders push cash-out refis even when you don’t need them, just so they can earn a bigger commission.
4. Ignoring the Total Payoff Cost (Long-Term View)
Here’s the bait-and-switch that gets people stuck: “You’ll lower your monthly payment by $200!” Sounds awesome, right? But what they don’t show you is this: You’re resetting your 30-year mortgage again and spending thousands more in interest by the end of the loan. Let’s say you’re 5 years into your VA loan. You refinance, and now you’re starting a brand-new 30-year loan. That’s 5 extra years of payments.
So, is it worth it?
Here’s how I look at it:
- Add up how much you’ll pay if you stick with your current loan until it’s paid off.
- Then total up how much you’ll pay with your new refinanced loan—include the closing costs.
- The difference between those two is your real “cost” or “savings.”
No quick math trick here. Just a calculator, your current loan info, and maybe coffee. And remember, if you move before your breakeven point? You probably lost money refinancing a VA loan—no sugarcoating it.
5. Forgetting About the VA Funding Fee (Again)
Yup. The VA Funding Fee doesn’t disappear just because you’re refinancing. Whether you’re doing an IRRRL or a cash-out refinance, there’s a fee associated with it:
- IRRRL: Usually 0.5% of the loan amount.
- Cash-Out: Usually up to 2.15%, more if you’ve used your VA benefits before.
Now, if you qualify for exemption—disability rating for example—you don’t pay it.
But if not, that funding fee gets tacked right into your loan total unless you pay it upfront. Know what that means? You’re paying interest on it too over time.
Don’t let this slide past you. It’s real money.
FAQs
Does refinancing a VA loan reset my mortgage term?
It sure can. If you had 24 years left and refi into a 30-year loan, you’re starting over. Some lenders offer 15, 20, or 25-year options though—just ask.
Is there a credit score requirement to refinance a VA loan?
Yep. If you’re doing an IRRRL, there’s usually no credit check. But a cash-out refinance typically needs a 620+ score.
Can I refinance a VA loan to get cash back?
Only with a VA cash-out refinance. You’ll need enough equity, an appraisal, and proof that you can handle the new payments.
Can I refinance a VA loan more than once?
You can… but every refi comes with costs. If you’re doing a second or third refi, be sure your new rate AND timeline make sense.
Closing Thoughts
Refinancing a VA loan can be a smart financial move—but only if you avoid common pitfalls. Understanding the difference between an IRRRL and a cash-out refinance, comparing lenders, and calculating long-term costs are crucial steps. Don’t let hidden fees or a reset loan term erase your savings. By making informed decisions, you can maximize your VA loan benefits and avoid costly refinancing mistakes. Plan wisely, and refinancing could work to your advantage.