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Written by
David McMillin
Edited by
Troy Segal
Troy Segal is a senior editor for Bankrate. She edits stories about mortgages and home equity, along with the finer financial points of owning and maintaining a home.
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When you qualified for a VA loan, you earned some crucial home buying benefits: You didn’t need to make a down payment, you weren’t required to pay extra for mortgage insurance and you likely received a lower fixed interest rate than you would have with other financing options.
Now that you have your loan, there is another perk you can capitalize on: a VA streamline refinance, officially known as an interest rate reduction refinance loan (VA IRRRL).
A VA IRRRL refinances a VA loan but without many of the requirements that apply in a typical refinance. This type of VA refinance can be a pathway to lower your monthly payments and lock in a low fixed interest rate, all the while avoiding many of the usual refinancing hassles.
“The VA IRRRL is an option that enables homeowners to refinance a previously existing fixed-rate VA home loan to a new one, typically with a lower interest rate,” says Robert Greenbaum, chief sales officer for the American Armed Forces Mutual Aid Association. “But it can also be used to convert a VA home loan with an adjustable rate to a fixed rate, making your payments more stable.”
As its nickname suggests, a VA IRRRL is a more streamlined refinancing process than those for other loan types. That’s because an IRRRL doesn’t require a home appraisal or a credit underwriting package, meaning you can likely still get approved even if your home’s condition or your credit score/financial situation has worsened since you initially took out your VA loan.
This type of refinance also lets you roll your closing costs and funding fee into the new loan, which means you avoid paying anything upfront. Keep in mind that if you wrap those costs into the loan, though, you will still pay for them — just over an extended period as they accrue additional interest charges.
You’ll need to meet these basic requirements to be eligible for a VA IRRRL refinance. Other requirements may vary by lender. You:
In addition, if you have a second mortgage on your home, you’ll need to get your mortgage lender to agree to position your newly-refinanced VA loan as the first mortgage.
“You also need to be current on your mortgage payments and in good standing with your lender to qualify,” says Greenbaum. “You are not eligible for a VA streamline refinance if you have a non-VA loan.”
Here are some scenarios where a VA streamline refinance can be a smart move:
Before you decide if a VA streamline refinance is right for you, though, consider the pros and cons.
Here are the steps involved with getting a VA IRRRL, according to the U.S. Department of Veterans Affairs:
You won’t have to make a down payment or pay for mortgage insurance, and you are guaranteed to pay a lower fixed interest rate if you are refinancing from a fixed-rate VA loan. However, there are still expenses involved with a VA IRRRL.
Remember the VA funding fee you paid when you first applied for your VA home loan? There’s also a funding fee involved with a VA IRRRL. The good news is it will only cost you 0.5 percent of the loan amount.
“You may not have to pay this 0.5 percent funding fee if you qualify for disability services through the VA,” says Leonard Ang, CEO of iPropertyManagement, a Michigan real estate company.
Additionally, you can expect to pay closing costs for the new loan, such as recording fees, title insurance, real estate taxes and other expenses.
“You may also need to pay an origination fee of up to 1 percent of the loan’s value, depending on the lender,” says Ang. “But this fee and any other closing costs can be rolled into the loan.”
Note that the closing cost fees you must pay for a VA streamline refinance are typically the same amounts you would be charged for any other type of loan.
“Fortunately, with a VA IRRRL, there will be no appraisal fee and limited, if any, credit report fees,” says Baker.
All in all, you can probably expect to pay at least 2 to 3 percent of your total loan amount in funding fees and closing costs combined.
VA IRRRL interest rates fluctuate from day to day. Still, they tend to be much lower than conventional refinance interest rates. If you are considering a VA IRRRL, be sure to shop around with different lenders, as their rates and APRs can vary.
Refinancing doesn’t come any easier or speedier than a VA streamline refinance, provided you qualify. Without paying much, you could wind up saving a lot of money, depending on your current rate, the new rate and the terms you can lock in. As you weigh your choices, use Bankrate’s VA loan calculator to estimate your new payment.
Every time you streamline a VA loan, it replaces your existing loan, so there is no limit to the number of times you can refinance a home using the VA IRRRL.
An IRRRL isn’t your only option for refinancing your mortgage. If you want to tap your home’s equity to borrow additional money, the VA also backs cash-out refinances. Another option is to refinance your VA loan into a conventional mortgage. If you’re seeking extra cash but can’t or don’t want to pursue a new mortgage, consider a home equity loan or home equity line of credit (HELOC).
Arrow Right Contributor, Personal Finance
