One of the more popular VA loan refinance options is the VA IRRRL. The VA IRRRL is also known as the VA streamline refinance. The IRRRL loan is abbreviated as Interest Rate Reduction Refinance Loan. The VA IRRRL is used to refinance one mortgage into another, to reduce your current rate into a new lower rate, and in most cases a lower monthly mortgage payment. Also with the IRRRL program, you can move from an adjustable-rate loan to a fixed-rate loan. The IRRRL program offers current veteran homeowners an excellent opportunity to take advantage of low-mortgage rates with the backing of the VA. The IRRRL again is also known as the VA streamline is exactly that, a streamlined process to refinancing your current mortgage. The VA has made this an easy process for veterans to help them save money and get a lower interest rate.
How Does the VA IRRRL Option Work?
Now we know the basics of the VA loan IRRRL but how does it work? In the VA loan program, there is a streamline refinance option called the VA IRRRL. As you can probably tell from the name, the VA’s streamline refinance option is intended for veteran borrowers who just want a lower interest rate on their mortgage. Getting a lower interest rate is good for two reasons: it saves you money over the life of the loan, and it saves you money every month because a smaller monthly payment will still be fully-amortizing.
Finding the Best IRRRL Lender
How do you go about choosing the best IRRRL lender? Great question, finding the best VA IRRRL lender simply comes down to getting the best possible rates and finding an experienced VA mortgage specialist.
Shopping around to find the best refinance rate is important, it could save you hundreds or possibly thousands of dollars over the life of the loan. You also need to be aware of predatory lending. The Consumer Financial Protection Bureau and the VA have issued their first warning order to service members and Veterans with a VA home loan. There has been an uptick of unsolicited offers sent to unsuspecting homeowners promising cash back, skipped mortgage payments and super low rates. These lenders can be aggressive and use misleading advertising tactics to lure you in. To read what the VA has to say about this situation, click here.
VA IRRRL Mortgage Rates Explained
Interest rates are probably what got you started down this path, so let’s begin there. VA IRRRL rates have stayed desirable throughout 2019 and should continue into 2020. Interest rates are based on many factors, so they can change daily. Actions by the Federal Reserve, the state of the economy and world events all have an impact.
A rate that’s a full percentage point below your current mortgage will give you the most benefit. A $150,000 loan at 5% interest will cost $805.23 per month. At 4%, that payment goes down to $716.12, saving you almost $90/month. As you can see, it pays to shop around.
The VA Interest Rate Reduction Refinance Loan, known as the IRRRL, is a program offered to anyone who already has a VA home loan. This loan is also called a VA Streamline because the process is designed to be quick and easy. In fact, you can generally apply and close in under 30 days, whereas a traditional refinance can take upwards of 45 to 90 days in some cases. It’s intended to be an efficient way for you to replace your current VA mortgage with a new, lower interest rate. The VA IRRRL program is also a useful way to move from an adjustable rate mortgage to a fixed-rate loan. Sound good?
Like any refinance, you should also make sure the benefits outweigh the costs involved. There are always costs associated with refinancing your mortgage, including closing costs and the VA Funding Fee. You may even opt to pay for something called points to further lower your interest rate. The good news is that all you can roll all these fees into the loan itself. That saves you from having to put out any cash to take advantage of the program. So, what are the VA IRRRL allowable closing costs and prepaids?
VA IRRRL Home Loan Benefits
So, what are the VA IRRRL home loan benefits? The VA streamline refinance is exactly that. The loan is designed to lower your VA mortgage interest rate in a fast and easy manner. You have already gone through most of the red tape when you applied for your VA home loan. You have your VA Certificate of Eligibility; you have already done the credit score process and you have the home appraisal. With the VA streamline refinance most of the heavy lifting has already been done.
People with an adjustable rate mortgage can also take advantage of moving to a fixed-rate loan with an IRRRL. When your mortgage is adjustable, your payment can go up without warning making meeting monthly expenses difficult. This is the only instance where refinancing may increase your interest rate. The best thing about going this route is being able to lock in your interest rate. Having the stability of knowing that your payments will not change throughout the life of the loan can give you a lot of peace of mind.
VA IRRRL Closing Costs
VA IRRRL closing costs who pays them and how much are they? Closing costs are comprised of various services lenders charge as they process your loan. These charges include recording fees, flood zone determination, title insurance fees, prepaid taxes and hazard insurance. It also includes the Loan Origination Fee, which is not allowed to exceed 1% of the total amount of the IRRRL. The origination fee is another lump sum lenders use to combine administration fees. These include notary, application and processing, document preparation, loan closing and more.
Understanding How the VA Funding fee Works
The VA Funding Fee is another fee added to the cost of refinancing under this program. The VA funding fee is there to reduce the cost of the program to taxpayers considering that there is no down payment or Private Mortgage Insurance associated with VA loan programs. You also paid the VA funding fee when you got your original purchase loan. It’s calculated using a percentage of the total amount of the loan. That percentage is determined on several factors, such as whether you choose to make a voluntary down payment, whether you’re a first time user, or your military category. For example, National Guard and Reserve members pay a slightly higher funding fee than full time service members. You can read more about VA IRRRL Funding Fee details here.
Determine the Refinance Break Even Point
So with these extra costs added on, how do you determine whether the IRRRL is worth it? You’ll want to figure out your break-even point. In other words, how long will it take you to recoup the closing costs and the funding fee based on the monthly savings you receive after closing? Let’s look at the example from earlier in this article. Your current loan is $150,000 at 5% interest, costing $805.23/month. Your IRRRL will be $150,000 at 4%, lowering your payment to $716.12/month. You save $86.11/month. If your total closing costs are $2,500, divide that by the $86.11. It will take you 29 months to recoup the amount you added to your loan for closing costs. If you are planning to live in your current house for another 2.5 years, you will be ahead of the game.
VA Streamline Refinance Loan Eligibility
To be eligible for a VA streamline refinance home loan there are a few things to keep in mind. You must be a veteran that owns your home. You must already have a VA home loan. This is what helps with the VA streamline refinance process. By having a previous VA home loan the mortgage information is transferred over helping to reduce the paperwork significantly on the VA IRRRL. You can still convert your non VA home loan to a VA mortgage. However if you currently have an FHA or conventional loan there might be more paperwork involved and a higher VA funding fee depending on your situation.
- Current mortgage must be a VA loan
- Must be a veteran homeowner
- No Fico Restrictions
- No need for an appraisal
- No lender fee
- No Mortgage Insurance
- No LTV restrictions
- No loan limits
The VA IRRRL is a benefit designed to help veteran homeowners reduce their interest rate in a quick and simplified manner by reducing the amount of paperwork. The IRRRL has helped many veteran home owners save money while lowering their interest rate. Click on this link If you would like to take a closer look at the IRRRL program pros and cons or you can call and speak with a VA IRRRL lender at (855) 956-4040.
How do I Qualify for a VA IRRRL?Qualifying for the VA IRRRL program basically has two main factors. If you are a current homeowner that used your VA benefits to purchase your home chances are, if you qualified for a VA loan in the first place, then you are qualified for the IRRRL program. That being said there are a few exceptions to this, and requirements can vary, but generally speaking, that is the case. The second factor is your current situation. If the IRRRL benefits your current situation and it makes sense then there is usually no problem. If the Interest Rate Reduction Refinance Loan is something that you would like to consider the best thing to do is call (855) 956-4040 to talk to a VA mortgage specialist.
If you’ve gotten married since you got your VA loan, and are wanting to add your new spouse as an obligor on the loan, you may be able to use an IRRRL to do so but it will at least need to be submitted for prior approval to the VA, and will not be nearly as “streamlined” as it would be otherwise. The same is true for a divorce where one or more of the obligors are getting taken off the loan. In cases of joint VA loans where the obligors change, an IRRRL is usually not possible. This is one way that your situation can disqualify you from being able to use an IRRRL to refinance your loan. In these cases, you will need to use a standard refinance to update your mortgage. A change of obligors is not the only situational variable that affects your ability to use an IRRRL.
The VA requires that an IRRRL results in a net benefit to the borrower. They require that your interest rate must lower as a result of the IRRRL unless you are going from an ARM to a fixed-rate mortgage. ARM loan interest rates are calculated differently, and are often lower than their fixed-rate counterparts. The VA also requires that your principal and interest payment becomes lower (which usually happens by default when the interest rate lowers), or the remaining term on the loan must decrease. Even if you secure a lower interest rate, your payment might get higher if you choose a shorter term, since you’re paying off more principal each month.
If you would like to learn more about the VA IRRRL program and see if you qualify call (855) 956-4040 to speak with a licensed VA loan specialist.