What’s an Interest Rate Reduction Refinance Loan (IRRRL)?
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IRRRL is a VA Loan for Streamline Mortgage Refinance
According to the US Government, one of the best programs available for veterans looking to improve, refinance, or buy a home is the VA Loan program? These home grants and loans are available through the Department of Veterans Affairs (VA). If you’ve received a VA home loan for a home in Texas or Colorado, then you might be thinking of using the Interest Rate Reduction Refinance Loan (also known as IRRRL) to refinance your existing loan. You might have questions about the IRRRL, such as:
“What’s an Interest Rate Reduction Refinance Loan and how can it help me?”
“Am I eligible for an IRRRL?”
“How does this type of loan work?”
“What are the pros and cons of an IRRRL?”
If you don’t have the answers to these questions, then you might not be sure about whether getting an IRRRL is right for you. Once you have all the information about the IRRRL, you can decide if this loan is right for you.
What’s an Interest Rate Reduction Refinance Loan?
An Interest Rate Reduction Reduction Refinance Loan (IRRRL) is a loan that makes it possible for you to refinance your Veteran’s Administration (VA) loan. This type of refinance loan is available to military servicemembers, veterans, and their family members. When you’re using this VA refinancing program, you have two options. You can take the mortgage you already have and replace it with a mortgage that’s lower-interest. Additionally, you can take the mortgage you already have that’s adjustable-rate, changing it to one that is fixed-rate. The IRRRL is only available to people who are already homeowners and who currently have a VA home Loan. This program was introduced back in 1980 through The Veterans’ Disability Compensation and Housing Benefits Amendments. You can use the IRRRL to refinance a manufactured home, condominium, or single-family home. When you’re applying for the IRRRL, the home you’re refinancing must be a property in which you, your spouse, and any dependent children live.
Do You Qualify for an IRRRL?
You might qualify for an IRRRL if you’re a qualifying active-duty service or reserve member, a veteran who already owns a home or a military spouse who has survived the military officer you were married to. If you’re a military officer, then you qualify as one of the following (as long as you haven’t been dishonorably discharged):
- Member of the Reserve and National Guard (after six years of service)
- Member of the Reserve and National Guard (after having been called to active duty)
- Service Member who is in active duty
- Surviving spouse (sometimes)
If you are one of these people, then there are certain situational requirements your housing situation needs to meet so that you qualify for the IRRRL. First, you must already have a loan that is VA-backed. Second, you must be planning to use the IRRRL to refinance that VA-backed loan. Third, you must be able to certify that you used to live in, or currently live in, the home that has been covered by the VA-backed loan. Note that, if you have a second mortgage on your home, you can’t apply the IRRRL to your second mortgage. It must be applied to the first mortgage you had on your home.
How Does This Type of Loan Work?
When you get an IRRRL, it’s quite similar to comparable refinancing loans. This is because, in terms of how it works, you’re replacing your current mortgage with a new mortgage. The IRRRL makes it possible for you to change your loan to having a hybrid adjustable-rate, an adjustable-rate, or a fixed rate. However, even though the IRRRL is similar in terms of changing the interest rate of your mortgage, there are some differences that make it different from a traditional refinance loan. First of all, the loan amount, financing fees, and the IRRRL interest rate must all total to a number that is less than or equal to the amount of the original loan. Second, the VA rarely requires underwriting or credit information. However, do keep in mind that the lender you’re working with might require one or both of these. Working with a local mortgage broker gives you a wide selection of VA lenders. Third, there usually aren’t any cash-out options available. The exception to this is if you need the funds to make improvements to your home that are energy-efficient. Additionally, when it comes to the loan-to-value ratio, there’s no maximum—and there aren’t any income limits. Additionally, there isn’t an appraisal required. This makes getting the IRRRL a bit simpler and more flexible than getting a traditional refinance loan.
There are some additional details regarding how this refinance loan works that are related to the fact that it’s a VA Loan. Just like when you get any other type of VA loan, you can only get the IRRRL through a lender that is VA-approved. You also need to pay the VA Funding Fee.
When it comes to IRRRLs, this fee is 0.5%. Additionally, you will be required to provide a Certificate of Eligibility (COE) that is valid. To do this, you can use the COE you already have, or you can get it from the VA/DoD eBenefits portal. Additionally, the VA’s email confirmation process can be used by your lender for the verification of the COE you already have. Finally, the interest and principal payment have to be a lower amount than the original loan—unless it’s an ARM loan you’re refinancing, the IRRRL is being used for improvements that are energy-efficient, or the original loan term is longer than the new refinance term.
The Pros and Cons of an IRRRL
To understand whether getting an IRRRL is right for you, you need to review the pros and cons of this type of refinance loan. One of the pros is that the funding fee and closing costs can be rolled in. This means that you can avoid paying out-of-pocket costs. Additionally, the IRRRL is designed to reduce your monthly payment and interest rate. An additional pro is that, usually, there aren’t any requirements when it comes to LTV, income, underwriting, or credit information. As for cons, these include that you can only get this loan if you’re already in possession of a VA loan, you can only use certain lenders, and, when it comes to cash-out options, you’re limited.
How to Get an IRRRL
To get an IRRRL, there are several steps you need to take. These include finding a lender, giving your lender the information they need to approve you for the loan, using your lender’s process when it comes to closing, and paying your closing costs. Let’s review these in detail.
Finding a Lender
Let’s say you want to find interest rate reduction refinance lenders. To do this, you have to get in touch with credit unions, mortgage companies, and private banks where you’re based, whether that’s Texas or Colorado. It may seem to make sense that you would do this through the VA, but you don’t. You have to get in touch with the lenders directly. To have more options when it comes to interest rate reduction refinance rates and interest rate reduction refinance loans, you should get in touch with several lenders. This way you can compare what they offer and choose the best refinance loan for you. When you’re comparing these offers, be careful. If there’s a lender who offers very low-interest rates or who says you can skip payments, then what they’re offering is probably too good to be true.
Provide Your Lender With the Needed Information
The next step is to provide your lender with the needed information. In addition to what you would usually provide to get a refinance loan, you also need to provide them with your Certificate of Eligibility (COE). If you don’t have it, your lender can get it through the portal as mentioned above.
Use Your Lender’s Closing Process and Pay the Closing Costs
Next, you’ll use your lender’s closing process to close the IRRRL loan. When you do this, you’ll also have to pay the funding fee required by the VA. Even though it’s annoying to have to pay for this, you will save money in the long-term. This is because this fee lowers the loan’s cost. It has a direct effect on how much can save when it comes to monthly mortgage insurance and your down payment since you aren’t required to pay these when you get a loan through the VA Home Loan Program. You’ll also have to pay the closing costs and the interest on the loan that is determined by your lender. If you don’t want to pay upfront, you can include these costs in the loan itself. Another option is to get a high-interest loan for which your lender covers these costs.
Getting a Cash-Out IRRRL
Even though you don’t usually get cash-out with an IRRRL, it may be the case if you’re applying for the Energy Improvement Mortgage (EIM). When you get this type of refinance loan, you get the cash that can cover improvements in your home that are energy efficient. If you’re going this route, you need to review which changes to your home will qualify first. Be aware that, once you’ve received the loan, you might have someone come into your home to do an energy audit. (This usually occurs sometime within the first six months after you’ve received the loan.) There are also might be more underwriting requirements than with an ordinary IRRRL. A VA Cash Out refinance is not the same as IRRRL. Check with your local mortgage lender if you are inquiring about a VA Cash-Out in Texas; state restrictions will apply.
Refinance an ARM to Fixed Rate IRRRL
There’s also a specific process you follow when you’re using an IRRRL to change your mortgage from an ARM mortgage to a fixed rate mortgage. Refinancing for this reason is especially appealing if you don’t want to have to worry about rates changing in the future. Usually, the VA doesn’t make it possible for you to increase the interest on your mortgage when you’re doing a refinance. However, when you’re doing the ARM to fixed process, they do. Be sure to check with your local mortgage lender to ensure you are getting the lowest possible VA IRRRL rate.
Refinance to a Shorter Mortgage
The VA will also let you use an IRRRL if you’re changing your home loan from a longer-term mortgage to a shorter one. For example, if you want to pay off your mortgage sooner by changing it from a 30-year mortgage to a 15-year mortgage, you can do this. Of course, your payment will be higher, but you will save on interest. As long as you find a good mortgage lender who can offer a low VA mortgage rate, you should be able to pay off your 15yr mortgage and still maintain a low monthly mortgage payment. Talk to your local mortgage broker to ensure you are comfortable with the new payment. If you aren’t sure if a 15-year mortgage is affordable, request a free mortgage loan fee worksheet to see if 15-year mortgage vs. 30-year mortgage works for you. Be sure to indicate your IRRRL financing goals.
Need More Information?
You’ve learned more about the Interest Rate Reduction Refinance Loan. If you still have questions or need more information, find a local mortgage lender with low VA IRRRL rates. If you need to talk to a licensed mortgage loan officer in Texas or Colorado, please call or easily schedule a time that works best for you. Still need help with your IRRRL? Request a loan fee worksheet and get a breakdown of the IRRRL without a credit inquiry. Whatever information you need, we’re here to help. At Competitive Home Lending, we’re experts when it comes to mortgage loans, and finding the best mortgage rate available. You save the most when you avoid retail mortgage rates. To learn more about how we can help you, contact us here.