Your VA Loan
Refinance VA Home Loan
Proven Streamline Refinancing Your VA Loan with IRRRL
If you have a VA loan and are thinking about refinancing, you have two options: you can refinance simply to get a lower interest rate, or you can do a “cash out refinancing,” by taking a new loan greater than the amount of your present mortgage. This Executive Summary Report focuses on refinancing your VA home purchase loan without the cash out option. Note that you can use any VA approved lender to refinance.
Refinancing Without Cashing Out
VA loans have a unique feature that allows borrowers to refinance their loans quickly and efficiently in order to take advantage of reduced interest rates. These are referred to as “Interest Rate Reduction Refinance Loans” or IRRRLs (pronounced “earls”). They are also known as “Streamline Refinancing” loans. The obvious purpose of a Streamline Refinancing is to obtain a lower interest rate and thereby reduce your monthly payments. These loans can only be used to refinance an existing VA home loan. You cannot refinance a conventional mortgage with a Streamline Refinancing.
Streamline Refinancing a VA Home Loan
Other Closing Costs
Closing costs payable to third parties (in addition to the Funding Fee and lender fees) normally associated with a Streamline Refinancing loan may include, among other things:
- Title Examination and Title Insurance
- Flood Zone Determination
- Recording Fees
- Attorney fees
Cost Saving Requirements
You cannot do a Streamline Refinancing unless you will recover all costs associated with the new loan (excluding the VA funding fee) within 36 months of closing; this includes the cost of discount points. Also, your new interest rate must be at least 0.5% less than your current rate if you are refinancing a fixed rate loan with a new fixed rate loan. If you are switching from a fixed to an adjustable rate loan, your new interest rate must be at least 2.0% less than the rate on your current loan, and if you’re switching from an adjustable to a fixed rate loan, no decrease in interest rate is required.
Should You “Reset the Clock”?
When you refinance your VA loan, you have the option of “resetting the clock” by getting a new mortgage loan with a 30-year term. This, along with a reduced interest rate, can help lower your monthly payment. However, this also means extending the time it takes to pay off your loan.
For example, if you took out a 30-year mortgage five years ago, you have 25 years remaining until your loan is fully repaid. When you refinance, you can maintain your “payoff timetable” by getting a new 25-year loan instead of another 30-year loan. However, your maximum term increase is 10 years, so if you have only 10 years remaining on your current loan, your new term cannot exceed 20 years. Of course, you can also select a 15 or 20-year loan if you want to accelerate your repayment schedule.
You Must Be Up to Date
You cannot qualify for a Streamline Refinance loan if you have been late with any mortgage payments over the past year. If you have been late with a payment, do not apply to refinance until you have made 12 on-time payments in a row. You also must stay current with payments while your loan application is being processed
There are “Seasoning Requirements” for all VA Streamline Refinancing: you cannot refinance until you have made at least six payments on your current VA mortgage loan. Also, the due date of your first payment on your new loan must be at least 210 days after your first payment due date on your first loan.
Other Useful Information
While you can’t get cash back on a Streamline refinancing, there is one exception: you can take out up to $6,000 in cash, but only for specific, energy efficient home improvements made within 90 days prior to loan closing date. In other words you have to pay for the improvements first, and then add the funds to your new loan balance. This may be helpful if you want to install new windows or get a new heat pump, for example.
There is no maximum loan amount on a Streamline Refinance loan. You can refinance your existing loan balance along with permitted costs and fees (including the funding fee). You can also finance up to two discount points. Ask your loan officer to help you decide if buying down your rate using discount points is a good idea for your situation.
This is only a summary of VA Streamline Loan information – for complete details visit: https://www.va.gov/housing-assistance/home-loans/loan-types/interest-rate-reduction-loan/