Hawaii's high mortgage debt
Pacific Business News reports that Hawaii has the third-highest average mortgage debt in the country, at $344,819, according to a 2019 Experian report. Only the District of Columbia ($418,555) and California ($363,537) had more mortgage debt per borrower as of 2019. In comparison, the national average mortgage debt nationwide was $202,284, held at an average interest rate of 4.37%.
Looking at the top 100 major metropolitan statistical areas, Honolulu residents also rank very high, with an average mortgage debt per borrower of $365,288. That represents an increase of 3.3% compared to the prior year, according to Experian’s data.
Naturally, that translates to high mortgage payments: According to U.S. Census data, Hawaii’s average monthly payment, $1,747, is second only to Washington D.C.’s $1784, and outstrips California’s average payment of $1,642.00.
Take advantage of low interest rates
Because of our high mortgage balances here in Hawaii, we also have much more to gain than almost any other market by taking advantage of today's extremely low interest rates and refinancing.
The reason: We're simply working with bigger numbers in Hawaii. Small interest rate advantages in Hawaii are leveraged into more significant gains, when it comes to freeing up cash flow each month.
And if you're a veteran who bought your home with a VA loan, it's practically a no-brainer. The VA's Interest Rate Reduction Loan program – called the "Streamlined Refinance Program" in many circles, because it's so easy, fast and straightforward – makes refinancing a snap for qualified VA borrowers.
Lower your mortgage payment
The VA Interest Rate Reduction Loan (IRRL) is designed to do just what it says: Make it easy for veterans to lower their monthly mortgage payments and instantly free up cash flow every month by lowering the interest rate on the loan.
Potential savings for Hawaii homeowners
Every situation is different. But it’s possible to estimate potential savings for the average Hawaii homebuyer who wants to lower their monthly payments and chooses a 30-year term.
As of this writing (early May 2020), the average interest rate on newly-issued 30-year mortgages is 3.51%, according to Bankrate.com.
Those with strong credit, or who are borrowing over shorter terms can usually qualify for even lower rates, but 3.51% is the average this week.
Hawaii-specific refinance example
In our example, we’re making the following assumptions:
- The borrower has the average mortgage balance in Hawaii of $344,819;
- The borrower is paying the average current interest rate of 4.37%.
- The borrower will refinance the loan to today’s average rate of 3.51%.
- The borrower pays nothing out of pocket (there is a VA loan fee of 0.5%, wrapped into the loan).
- No PMI
Original VA Mortgage
New IRRL Refinance Loan
Average balance (Hawaii)
4.37% (Source: Experian)
Monthly payment, 30-year mortgage
Current average: $1,747
(Source: U.S. census data)
Monthly Savings ($1747-$1550
In this scenario, the monthly cash savings is $197 per month. The ‘break-even point’ (the point at which the monthly savings exceeds the cost of refinancing) is in less than a year.
There are a few more variables to consider – including how old your current loan is and how much time is remaining in the term.
You can take that extra cash you get every month and put it to better use:
- Pay down high-interest credit card balances;
- Pay off car loans;
- Invest for retirement;
- Save for college;
- Put it towards the purchase of an investment property
"Don't make the decision in a vacuum," Myers advises Hawaii homeowners. "It's a good idea to think about the most productive things you can do with any monthly savings. Always keep your eye on the big picture, and your overall financial goals.
Maximize savings over the life of the loan
To maximize your savings over the life of the loan, you can refinance to a shorter term – usually at an even lower interest rate, though the monthly payment will be higher. The average 15-year loan interest rate is 2.95% (for a monthly payment of $2,373. That’s much higher than a 30-year payment. But compared to a 30-year loan at 3.53%, that higher payment builds up equity much faster, and it saves more than $170,000 over the life of the loan.
Convert from variable to fixed-rate
Or if you currently have a variable rate loan, the IRRL makes it equally easy to ‘lock in’ historically low interest rates, and eliminate the risk of your mortgage rate and payment going up for the life of the loan.
“This is particularly important in Hawaii, because of the high balances we have here,” says Reed Kawai Myers, principal at Myers Capital Hawaii, a local family-owned mortgage broker in Honolulu. “With variable mortgages, even a small increase in interest rates can have a significant effect on family budgets, when payments get reset. Now’s a great time to refinance and get today’s rate locked in.”
The VA Streamline Refinance program is different from most refinance loans. Typically, borrowers in non-VA loans have to go through underwriting all over again in order to refinance. That means a credit check, a lengthy income verification process, a new home appraisal, and a process that can take weeks.
But VA borrowers have an advantage: With the VA IRRL program, there’s next to no underwriting requirements:
- No credit check required
- No employment verification
- No appraisal required
- No new VA certificate of eligibility required.
Are you eligible?
The eligibility requirements for the VA IRRL program are straightforward:
- You must have a VA-backed mortgage, and;
- You must use the IRRL to refinance the existing VA mortgage, and;
- You must certify that have lived in the home at some point, and;
- You must have made at least six payments on the existing VA mortgage, or 210 days must have elapsed since you got it (whichever is longer).
Can I get cash out?
The VA Streamline Refinance loan isn’t designed for cash-out’ refinances. IRRRL cash out is restricted to $6,000 for qualifying energy improvements you will complete within 90 days. If you want to turn some of your home equity into cash, let us know. The VA has an excellent cash-out mortgage refinance program for veterans, too. And we can look at some other options, as well.
Refinancing a rental property
You can use a VA Streamlined Refinance loan to refinance either a personal residence or a rental property. All you have to do is verify that you did, in fact, live in the home at some point since you took out the original VA mortgage.
It is true that an original VA mortgage can only be used to purchase an owner-occupied home. But you only have to stay in the home for a year. If you’ve since moved out and turned it into an investment property, you can still use a VA IRRL mortgage.
You cannot borrow more than your original VA loan amount.