My Lender Tells Me That My VA Refinance is Free. Is It?

Great question! My name’s Evan Kaufman, your VA loan originator, here to help explain.

Refinances are very unique, especially on VA loans.

I won’t go into full detail, but you can watch some of my other videos where we talk about VA IRRRLs (Interest Rate Reduction Refinance Loans).

VA refinances can be really powerful because if you’re not pulling money out, you can do a streamlined refinance—called an Interest Rate Reduction Refinance Loan or “IRRRL”—without needing an appraisal or income documentation.

They’re relatively smooth, fast, and simple to process.

Heck, for us, we don’t even need a hard credit pull—just a soft pull to get them done.

It’s really impressive and allows veterans to lower their rates.

Lately, with rates starting to drift down, some people are being told, “Hey, I’m getting a free refinance.” My goodness! Is that real? The answer is—possibly.

Here’s the thing: in lending, there’s a lot of confusion about how borrowers are charged.

And you’ve got to be aware of this.

I have a couple of other good videos about what I like to call the “three-way teeter-totter.” This is the three different ways you’re charged by lenders.

Just a quick recap:

1. Interest Rate
2. Lender Fees
3. Finance Charges (Points or Buydowns)

These are the three major ways you’re charged.

The deal is, when you’re doing a refinance, these three things still come into play.

So, when someone says, “Hey, I hear it’s free,” well, that might just mean some of those costs are rolled into one of the other areas.

For example, on the purchase side of the business—where we work with a lot of active-duty military PCS (which is the bulk of our business)—if someone asks, “Hey Evan, what’s your interest rate?” sometimes I joke, “What do you want it to be?” – because that’s a very nuanced question.

Some lenders might take advantage of this.

They’ll give you a super low rate, but they don’t mention the high finance charges attached to it.

Then, when you get your paperwork, you’re shocked.

The same thing can happen with refinances.

If someone tells you, “Hey, there are no lender costs, that’s awesome!”

But how are they getting paid?

It’s probably built into a slightly higher interest rate, or you’re paying finance charges.

Likewise, if you hear about a super low rate that sounds too good to be true, you might look at the final documents and realize it was too good to be true because you’re paying a high finance charge, often referred to as points or a permanent buy-down.

In the refinance world, it’s a little more nuanced, but the same mechanics apply.

If you’re told, “It’s a free refinance,” I’ll explain that there are usually two options: the lowest rate option or what I call the “no-cost credit option.”

The no-cost credit option is where you’re effectively taking a higher rate but getting a credit to cover your costs.

Just as you can pay money to get a lower interest rate on a purchase, in the refinance world, you can take a slightly higher rate to get a credit. This credit can cover your closing costs.

However, you want to pay attention!

If a lender says it’s “free,” you need to clarify.

Does that mean your costs are rolled into the interest rate, or are you actually getting a credit that covers all costs, including prepaid expenses, title, and other fees?

That’s why you want to get a loan estimate or a good mortgage quote to verify.

Remember, that “three-way teeter-totter” I always talk about on the purchase side also applies to refinances.

If you’re curious, we have a really cool tool called our “Refi Tool” that gives you notifications when you’re eligible for a VA streamlined refinance and estimates what your savings could be.

I like to call it the honest calculator.

You might get mailers advertising ridiculously low rates, but those rates often come with a catch—like two full finance points or a bunch of lender charges—so it’s essential to verify everything.

Our goal is to give you a legitimate idea of what a refi looks like without ridiculous finance charges.

If rates are low enough, we’ll offer the option of taking a slightly higher rate to get a credit and have a true no-cost refinance. In this scenario, your loan balance remains the same, your rate drops, and you start saving immediately—no cost to you.

It’s a great deal, and it can happen!

That said, always clarify when someone tells you a refinance is “free.” Understand what they mean by “free” and how those three factors (rate, fees, and charges) play into it.

If you’re ever curious, feel free to reach out. I’m happy to go over your options with you and compare them to any offers you’ve received.

The key is to work with someone you trust.

I hope this helps explain how a refinance can actually cost you nothing! My name is Evan Kaufman, your VA loan originator. Take care!