For people who have a current VA mortgage loan and are looking at refinancing options on the balance of their loan, an Interest Rate Reduction Refinancing Loan (IRRRL) may be an option. IRRRL, or VA Streamline Refinance, is a rather easy process that results in the reduction of your interest rate, provided you are not refinancing from an adjustable rate mortgage to a fixed rate mortgage.
The Benefits of an Interest Rate Reduction Refinancing Loan
The IRRRL is probably one of the easiest refinancing processes you will find anywhere. There is no appraisal or credit underwriting procedures required by the VA, although individual lenders may require such reports. The VA also does not require certificates of eligibility. Lenders may use the VA’s Prior Loan Validation procedure to determine the lowered interest rate instead of the eligibility certificate. Borrowers can refinance through the IRRRL without paying any out of pocket expenses as all costs can be included in the new loan.
VA Loan Refinance Terms
An Interest Rate Reduction Refinancing Loan can only be used if an individual has already used their eligibility for a VA loan on the property up for refinancing. The refinance must be a VA to VA refinance and the action will reuse the entitlement you have initially used. A lender will need to see your prior use of entitlement so they’ll need a copy of the Certificate of Eligibility.
The amount of the refinancing loan can not exceed the outstanding balance on the original loan plus allowable costs and fees for closing. Up to two discount points are also allowable. Plus, you can add up to $6000 of improvements made for energy efficiency. At no time can an individual receive cash back from the refinancing process.
When an original VA loan was done, there was a requirement to certify the individual was to occupy the home. With an IRRRL, you only need to certify you previously lived in the residence.
Should you do a VA Streamline Refinance?
Refinancing any loan requires thought and consideration of your financial situation now and down the road. Borrowers are strongly encouraged by the Veterans Administration to seek out the terms from several lenders and compare VA Mortgage rates before committing to one. There can be major differences between lender’s loan terms. Some lenders will promote the IRRRL by telling borrowers they are the only lender authorized to offer such a refinance. The reality is any lender can do a IRRRL. However, you may find it easier to deal with a company that specializes in these types of loans, such as VAMortgageCenter.com.
In some cases, the add-in costs can result in the loan amount being higher than the fair market value of the home. In these circumstances, the benefit of refinancing may not be in your best interest.
Lenders who offer IRRRL opportunities use it as an option for homeowners to reduce the term of the loan from 30 to 15 years. While it can reduce the time it takes to pay off the loan, the refinancing process will add new costs and potentially can increase your monthly payment significantly. If the new loan’s interest rate is not 1-2% lower than the original rate, it may not be worth the refinancing process as the initial loan may be in your best interest.
There will be lenders that try to add additional closing costs to the loan but know that the VA only requires one fee, the funding fee, for one-half of one percent of the loan amount. The funding fee may be paid in cash from the borrowers or rolled into the loan.
The decision to refinance is a personal one and a solution that works for one person may not work for another. Shop around for lenders and compare loan terms before committing to a refinance.
