If you currently have a mortgage backed by the Department of Veterans Affairs and are looking to refinance, you may qualify for a VA Interest Rate Reduction Refinance Loan (VA IRRRL). Many veterans find VA IRRRLs to be an effective method of saving money on their mortgages. Read on to learn more about VA IRRRLs so you can decide if this type of refinancing is right for you.

How does a VA IRRRL work?

A VA IRRRL is an option for homeowners who wish to switch to a new VA loan with different terms. Refinancing can result in switching from an adjustable-rate to a fixed-rate mortgage or lowering interest rates altogether, which can lower monthly mortgage payments.

Also known as a “streamline” refinance, a VA IRRRL is much quicker than a typical refinance because it allows borrowers to bypass the appraisal process required with conventional mortgages, unless a lender specifically requests it.

Who qualifies for a VA IRRRL?

To qualify for a VA IRRRL, you must meet the following criteria:

● You currently have a VA-backed home loan.
● You will be using the VA IRRRL to refinance the above home loan.
● The loan is for your current or former place of residence.
● It has been at least 210 days since you made your first mortgage payment, and you have made at least 6 months of payments.
● You will not receive any cash from the loan.

Also, note that individual lenders may have stricter approval requirements than the VA itself when it comes to a VA IRRRL. Lenders may ask for various information such as appraisals or credit reports to determine whether an applicant is eligible.

What are the benefits of a VA IRRRL?

VA IRRRLs are appealing not only because of their streamlined process and ease of qualification but also because of the financial benefits they can provide.

In addition to potentially lowering your monthly payments, a VA IRRRL doesn’t require mortgage insurance and has lower closing costs than a conventional loan refinance. You will need to pay a one-time funding fee, which may be waived if you meet certain criteria for exemption, such as a disability resulting from your service or you are a Purple Heart recipient.

What are the downsides of a VA IRRRL?

Most of the drawbacks of VA IRRRLs are those that would come with any other mortgage refinance. Refinancing means restarting your loan term, so for example, if your initial mortgage term was 30 years and you refinance 5 years into the loan, you are now left with another 30 years of payments rather than 25 years. You will also be required to pay closing costs unless these fees are rolled into your new loan.

With a VA IRRRL, you cannot receive any cash from loan proceeds, no matter how much equity you may have in your home. This means that you cannot use any proceeds to pay off a second lien on the property.

Chad Caplinger, owner of Cross Timbers Mortgage, is a veteran himself and a Certified Veterans Lending Specialist. Therefore, we love helping veterans with their home financing and truly care about your needs. In appreciation of your service, we provide our veteran clients up to $600 in credit towards appraisal costs at loan closing. Contact Cross Timbers Mortgage today to find the refinancing plan that is right for you.