Updated January 2018
When refinancing your home, many people will try to calculate how long it will take to recoup the closing costs associated with the refinance process and while there are many different ways to calculate it, one thing is certain:
You want to make sure that you recoup your closing costs in monthly mortgage savings as soon as possible.
Recouping Closing Costs For a VA IRRRL Streamline Refinance
The VA IRRRL or Streamline Refinance is no different from an “ordinary” refinance when it comes to calculating how long it takes to recoup your closing costs — whatever math equation you use for a normal refinance can also apply when doing an IRRRL.
Probably the most common way to calculate how long it would take to recoup the closing costs is to do the math like this:
First – calculate how much your loan balance is going up from closing costs.
Second – calculate how much you’re going to save in principal and interest on your monthly mortgage payment.
Third – divide your total closing costs by your monthly savings to arrive at a number of months.
- Your loan balance is going up $1,000 from closing costs.
- Your monthly savings in principal and interest is $100.
- $1,000 / $100 = 10 months to recoup your closing costs.
Yes, there are plenty of other ways to calculate your savings and/or how long it will take you to recoup your closing costs but this is just one simple way that you can easily estimate how long it will take to recoup the costs when doing a VA IRRRL — or any other refinance for that matter.
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Note: Reserves for taxes and insurance & pre-paid interest are not considered closing costs. Interest is paid daily and in arrears. Escrows are refunded from the previous loan servicer after closing. Many borrowers choose to bring escrows and pre-pairs to close since they will skip a payment and get an escrow refund.Click to See the Latest Mortgage Rates»