Here’s some useful tips to consider when you apply for an interest rate reduction refinance loan (IRRRL).
Did you know you can refinance your existing VA loan to lower your interest rate? This is called an Interest Rate Reduction Refinance Loan or IRRRL.
Here are some helpful tips and things to consider when you are considering an IRRRL:
- You should contact several lenders. There may be big differences in the terms offered by the various lenders.
- Some lenders may suggest that they are the only lender with authority to make IRRRLs. Remember, any lender approved by the VA can make an IRRRL.
- Some lenders may say that the VA requires certain closing costs to be charged and included in the loan. Remember, the only cost required by the VA is a funding fee of 0.5% of the loan amount, which may be paid in cash or rolled into the loan. No appraisal is needed in most cases, and you may be exempt from paying the funding fee!
- You cannot receive any cash from the loan proceeds. If you need equity from your home, check to see if VA cash-out refinance is right for you.
- It must be a VA to VA refinance, and it will reuse the entitlement you originally used. You may have used your entitlement by obtaining a VA loan when you bought your house, or by substituting your eligibility for that of the seller, if you assumed the loan. If you have your Certificate of Eligibility, take it to the lender to show the prior use of your entitlement.
- The occupancy requirement for an IRRRL is different from other VA loans. When you originally got your VA loan, you certified that you occupied or intended to occupy the home. For an IRRRL you need only certify that you previously occupied it.
- The loan may not exceed the sum of the outstanding balance on the existing VA loan, plus allowable fees and closing costs, including the VA funding fee and up to 2 discount points. You may also add up to $6,000 of energy efficiency improvements into the loan.
- Rolling closing costs and fees into your loan may result in a situation in which you owe more than the fair market value of the house, and reduce the benefit of refinancing, since your payment will not be lowered significantly. This could make it difficult to sell your house for enough to pay off your loan balance.
- Your VA IRRRL must pass the net tangible benefit (NTB) test to ensure that the refinance helps you out financially, not just the lender. To pass the NTB, the IRRL must do one of the following:
- Lower your interest rate by at least 0.5 percentage points if refinancing from a fixed rate to a fixed rate
- Move you from an adjustable-rate or variable-rate loan to a fixed rate loan
- Lower your combined principal and interest payment and recoup all closing costs within 36 months
- No loan other than the existing VA loan may be paid from the proceeds of an IRRRL. If you have a second mortgage, the holder must agree to subordinate that lien so that your new VA loan will be a first mortgage.
- Your existing VA loan must be seasoned: at least 210 days since the first payment due date and at least six consecutive on-time monthly payments.
Is an IRRRL Right for You? Calculate Your Potential Savings
Lowering your mortgage payment shouldn’t be a waiting game. Because an IRRRL requires minimal paperwork, no appraisal in most cases, and streamlined approval, locking in a lower rate is faster and easier than you think. Request your free, personalized VA rate quote today to compare top lenders and see how much you could start saving each month.
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