Dollars & Sense: VA Interest Rate Reduction Refinance Loan

Melanie Sedam

If you have an existing VA-backed home loan and want to reduce your monthly mortgage payments (or make your payments more stable), an interest rate reduction refinance loan (IRRRL) may be right for you. Refinancing lets you replace your current loan with a new one under different terms. Find out if you are eligible and how to apply.

Why might I want to get an IRRRL?

Often called a “streamline” refinance, an IRRRL may help you to:

* Lower your monthly mortgage payment by getting you a lower interest rate, or

* Make your monthly payments more stable by moving from a loan with an adjustable or variable interest rate (an interest rate that changes over time) to one that is fixed (the same interest rate over the life of the loan).

On a no down payment loan, you can borrow up to the Fannie Mae/Freddie Mac conforming loan limit in most areas—and more in some high-cost counties. You can borrow more than this amount if you want to make a down payment.

Learn about VA home loan limits

You will want to keep closing costs in mind when refinancing a loan, as they can add up to thousands of dollars. Before you decide to refinance, divide your closing costs by how much you expect to save every month by refinancing to see if it is worth it. While your lender can advise you on the costs and benefits of the transaction, you will want to be sure you understand what you are getting into.

Find a lender

You will go through a private bank, mortgage company, or credit union—not directly through us—to get an IRRRL. Terms and fees may vary, so contact several lenders to check out your options.

Note: If you have a VA home loan, be careful when considering home loan refinance offers. Claims that you can skip payments, get very low interest rates, or other terms that sound too good to be true may be signs of a misleading offer.

Give your lender any needed information

If you have the Certificate of Eligibility (COE) you used to get your original VA-backed home loan, take it to your lender to show the prior use of your entitlement. If you do not have your original COE, ask your lender to get your COE electronically through the VA home loan program portal.

Follow your lender’s process for closing on the IRRRL loan and pay your closing costs

You may need to pay the VA funding fee. This one-time fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program does not require down payments or monthly mortgage insurance. Your lender will also charge interest on the loan in addition to closing fees.

Learn about the VA funding fee and other closing costs

With an IRRRL, you can include these costs in the new loan, so you do not have to pay up front. You may be able to make the new loan at an interest rate high enough so your lender can pay the costs.

Melanie Sedam is the owner and a loan originator for The Paseo Group and she can be reached at 661-520-8219 ext. 2.