If you currently have a VA-backed home loan and are looking to reduce your monthly mortgage payments, an interest rate reduction refinance loan (IRRRL) may be right for you.
Refinancing lets you replace your existing loan with a new one under different terms. In order to be eligible, all of the following must be true:
- You have an existing VA-backed home loan
- You are using the IRRRL to refinance your existing VA-backed home loan
- You can verify that you currently live in or used to live in the home covered by the loan
An IRRRL is helpful in two ways, either by getting you a lower interest rate and lowering your monthly mortgage payments or by making your payments more stable by moving from a loan with an adjustable or variable interest rate to one that is fixed.
When refinancing your existing VA loan, the difference in rates or terms must provide you with an immediate financial benefit, such as monthly payment savings or a fixed rate rather than an interest level that adjusts. The VA will not allow you to refinance your loan simply because you want to change lenders or for any reason that does not relate to your direct finances.
There are many benefits to refinancing your VA loan, one being that an IRRRL includes little to no out-of-pocket costs and no VA appraisal in most scenarios. They also don’t require mortgage insurance, instead VA loans have a funding fee that can either be paid at closing, offset with a lender-paid credit, covered by seller concessions or added to the loan balance. For a VA IRRRL, the funding fee is 0.5% of the loan amount regardless of the circumstances.
A good candidate for the VA IRRRL program is typically a client that meets all the eligibility requirements and has an ARM. Mortgages with adjustable rates are often faced with higher interest rates throughout the lifetime of their loan. Refinancing an ARM can save more money long term, even if you take a higher interest rate when you switch from an adjustable rate mortgage to a fixed-rate mortgage.
Another factor to consider when determining if an interest rate reduction refinancing loan is right for you is if you are having trouble keeping up with your payments. A VA IRRRL can lower your rate, give you more reasonable payments, extend the length of your mortgage and find you a lower interest rate.
Every refinancing situation for a VA loan is different. That’s why it’s important to talk through your specific situation with a loan officer so they can help you determine what makes the most sense for you and your family’s unique financial situation.
Contact our team of reliable and knowledgeable loan officers today!