Veterans with VA-backed home loans have access to special refinancing options, but unscrupulous lenders sometimes encourage repeat refinancing, known as “loan churning,” to earn fees without providing real savings. To combat this, the Department of Veterans Affairs (VA) and Congress established the Anti-Churning Rule to protect veterans from being pressured into unnecessary refinances.
Purpose of the VA Anti-Churning Rule
The rule was created to prevent predatory refinancing practices where veterans are pushed into refinancing repeatedly without meaningful financial benefit. This practice can erode home equity and saddle veterans with excessive fees and less favorable loan terms.
Key Protections Under the Anti-Churning Rule
Lenders must meet three strict tests before a VA-backed refinance is guaranteed:
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Net Tangible Benefit (NTB) Test: The refinance must provide a clear financial advantage, such as reducing the interest rate by at least 0.5%, converting from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or shortening the loan term to save interest costs.
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Loan Seasoning Requirement: Veterans must have made at least six consecutive monthly payments on the existing loan, and at least 210 days must have passed since the first mortgage payment. This prevents refinancing too soon after closing.
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Fee Recoupment Rule: Closing costs and fees from refinancing must be recoverable within 36 months through savings on monthly payments. For example, if refinancing costs $3,600 and monthly savings are $125, it would take 28.8 months to break even, which meets the rule’s requirement.
Practical Tips for Veterans Considering Refinancing
Veterans should carefully evaluate refinancing offers:
- Request a detailed Loan Estimate to review all costs, interest rates, and monthly payments.
- Calculate the break-even period on refinancing fees to confirm it’s less than 36 months.
- Verify the net tangible benefit by checking if the interest rate drops by at least 0.5%, or if the loan structure improves.
- Avoid high-pressure sales tactics and take time to compare options.
Additional Resources
Learn more about the VA Interest Rate Reduction Refinance Loan (IRRRL) on our dedicated page: VA IRRRL (Interest Rate Reduction Refinance Loan). Also explore our glossary for related terms like VA Loan and Refinancing Risks.
Conclusion
The VA Anti-Churning Rule is a vital safeguard ensuring veterans benefit from each refinance. By requiring a net tangible benefit and setting loan seasoning and fee recoupment criteria, it helps veterans avoid costly refinancing schemes and protects their financial well-being.
Sources:
- Consumer Financial Protection Bureau (CFPB), “New protections for veterans refinancing their VA mortgages,” https://www.consumerfinance.gov/about-us/blog/new-protections-veterans-refinancing-their-va-mortgages/
- U.S. Department of Veterans Affairs (VA), “Interest Rate Reduction Refinance Loans (IRRRL),” https://www.va.gov/housing-assistance/home-loans/loan-types/interest-rate-reduction-refinance-loan/
- Investopedia, “VA IRRRL Rules You Should Know,” https://www.investopedia.com/va-irrrl-rules-5225021
For official details, visit the VA website at VA.gov.