VA Interest Rate Reduction Refinance Loan
The VA Interest Rate Reduction Refinance Loan (IRRRL), also known as the VA Streamline Refinance, is one of the best options for existing VA loan holders who want to take advantage of lower interest rates or refinance into a fixed-rate mortgage.
Wondering what an IRRRL is and how it works? The following guide will explain everything you need to know.
One of the biggest benefits of the VA IRRRL, sometimes called the VA Streamline Refinance, is the opportunity to potentially secure a lower interest rate. While getting a lower rate may not always be possible for Veteran homebuyers, the VA IRRRL is certainly a great program to know about.
What is a VA Interest Rate Reduction Refinance Loan (IRRRL)?
A VA IRRRL, or streamline refinance, lets current VA mortgage loan holders quickly refinance their loans. It allows you to refinance into a potentially lower interest rate with lower monthly payments.
You can also use an IRRRL to change from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. The process also lets you change your loan terms, such as switching from a 15-year mortgage to a 30-year mortgage.
How VA Streamline Refinances Work
The VA loan is “streamlined” because it requires far less documentation than other loans. When applying for an IRRRL, you might not need to provide information about your income and employment or go through credit underwriting. Since an IRRRL is only for holders of current VA loans, the VA already knows that you’re eligible. You won’t need to submit a Certificate of Eligibility (COE), and in most cases, you won’t need to have your home appraised. This further expedites the refinance process.
Not only is an IRRRL easy to apply for, but the closing costs are usually lower and you'll have the option of rolling them into your loan. This means you’ll be able to refinance without worrying about having cash at closing.
VA IRRRL Limitations
One thing you cannot do with an IRRRL is convert your home’s equity into cash. If you have equity in your home and you want to tap into that equity, consider doing a VA cash-out refinance.
It’s also important to note that the VA won’t approve an IRRRL unless it provides you with an immediate financial benefit, also called a "net tangible benefit." Basically, the VA wants to make sure the refinance provides a genuine financial advantage for the homeowner.
The VA has certain minimum standards when it comes to having a “net tangible benefit,” but monthly payment savings or a switch from adjustable to a fixed-rate mortgage typically qualifies. There are also rate reduction requirements.
VA IRRRL Eligibility
To be eligible for an IRRRL, you must currently have a VA loan. While homeowners who have FHA or conventional loans may qualify for a VA cash-out refinance, they cannot take advantage of the streamlined process offered by an IRRRL.
The Department of Veterans Affairs has also established the following eligibility guidelines:
- You must be current on your mortgage payments
- You must have no more than one 30-day late payment in the last 12 months
- The new interest rate and monthly payment must be less than the previous loan (except when refinancing an ARM to a fixed-rate mortgage)
- You must certify that you currently occupy the property or previously occupied it (you can use an IRRRL to refinance a property you're renting out as long as you can prove you lived in it at some point)
In addition, if you have a second mortgage on your loan, you’ll need to sign paperwork agreeing to make your new VA loan the primary mortgage.
If you have recently taken out a VA loan, you won't be able to qualify for an IRRRL right away.
Here are the restrictions:
- Borrowers must wait at least 210 days from the closing date of the original loan before applying for an IRRRL.
- There must be at least 210 days between the first mortgage payment and the day the new streamline mortgage closes.
- At least six consecutive monthly payments must be made on the current VA loan.
If you’re not sure whether you qualify for an IRRRL, it’s best to check with a lender who specializes in VA loans. This will ensure you have all the right information and can meet any additional requirements needed to qualify for your new streamline loan.
Is the VA IRRRL program worth it?
In many cases, refinancing using an IRRRL could be a smart move, depending on your situation.
If you currently have an adjustable-rate mortgage (ARM), your interest rate and monthly payments can go up over time. Depending on current market rates, using an IRRRL to move to a fixed-rate mortgage and lock in a reduced rate can be very beneficial. Even if you happened to lock in at a higher rate, switching from an ARM to a fixed-rate mortgage will typically save you more money in the long run.
Lowering your interest rate will not only result in a lower monthly payment, but it can also potentially save you thousands of dollars in interest payments over the loan’s lifetime. Since the process is streamlined, it won’t take much time and effort (or paperwork) and can put you in a stronger financial position for the future.
