If you currently have a VA-backed mortgage, the Interest Rate Reduction Refinance Loan, commonly called an IRRRL or VA Streamline Refinance, may provide a simpler way to refinance your existing loan.
An IRRRL can potentially reduce your interest rate and monthly principal and interest payment or provide greater payment stability by moving from an adjustable-rate mortgage to a fixed-rate loan. However, refinancing should provide a meaningful financial benefit after considering costs and the new loan terms.
What Is a VA IRRRL Refinance?
A VA IRRRL is specifically designed to refinance an existing VA-backed home loan into another VA-backed mortgage. It cannot generally be used to refinance a conventional, FHA, or other non-VA mortgage.
To qualify, you must have an existing VA-backed mortgage and certify that you currently live in or previously lived in the property being refinanced.
Why Consider a VA Streamline Refinance?
One of the primary reasons Veterans consider an IRRRL is to obtain a lower interest rate and potentially reduce the monthly mortgage payment. Another common reason is to replace an adjustable-rate VA mortgage with a fixed-rate loan for greater payment predictability.
When refinancing from an adjustable-rate mortgage to a fixed-rate mortgage, VA rules allow the new interest rate to be higher in certain circumstances. The important question is whether the new loan provides the required net tangible benefit and fits your financial goals.
Does a VA IRRRL Require an Appraisal?
A traditional home appraisal is generally not required for a VA IRRRL, although specific circumstances can create additional valuation requirements. The streamlined program may also involve less underwriting documentation than a standard refinance.
That does not mean every lender follows an identical process. VA-approved lenders can establish additional requirements, so documentation and underwriting can vary.
How Long Must You Wait Before Using an IRRRL?
VA seasoning requirements prevent a newly originated VA mortgage from being immediately refinanced through an IRRRL. The existing loan must meet both applicable timing and payment requirements before the new refinance can close.
Generally, at least six consecutive monthly payments must have been made on the VA loan being refinanced, and the new loan must close at least 210 days after the first payment due date on the existing mortgage.
Does a VA IRRRL Have Closing Costs?
Yes. A streamlined refinance is not a cost-free refinance. Depending on the transaction, expenses can include lender charges, title-related costs, discount points, prepaid items, and the VA funding fee when applicable.
Eligible closing costs can generally be included in the new IRRRL balance instead of being paid entirely out of pocket. Another possibility is receiving lender credits in exchange for accepting a higher interest rate. Either approach can affect the long-term cost of the mortgage.
What Is the VA IRRRL Funding Fee?
The current VA funding fee for an IRRRL is 0.5% of the loan amount. Certain Veterans, service members, and surviving spouses are exempt from paying the funding fee based on VA eligibility requirements.
If you are not exempt, the funding fee can generally be financed into the new mortgage. Ask your lender to show how financing the fee affects your new loan balance and overall refinance costs.
Can You Take Cash Out With a VA IRRRL?
No. An IRRRL is not designed for homeowners who want to access their home equity as cash. VA guidance does not permit borrowers to receive cash from the loan proceeds through an IRRRL.
If accessing home equity is your goal, a VA-backed cash-out refinance may be an alternative for eligible borrowers, but it has different qualification, appraisal, occupancy, and underwriting requirements.
Is a VA IRRRL Refinance Worth It?
Do not judge an IRRRL solely by how much the interest rate decreases. Compare your current mortgage with the proposed refinance, including the monthly payment, closing costs, new loan balance, loan term, funding fee, and total interest expense.
Be cautious of refinance advertisements promising unusually low rates, skipped mortgage payments, or guaranteed savings. VA encourages borrowers to compare lenders because rates, fees, and terms can vary.
Loan Wolf Lending can help Florida Veterans and eligible service members review their current VA mortgage and determine whether an IRRRL or another VA refinance option fits their goals. Call 754-755-3075 to discuss your VA refinancing options.