What does IRRRL stand for? – Interest Rate Reduction Refinance Loan
What is a VA IRRRL? – Also called a VA Streamline Refinance, an IRRRL is special type of rate and term refinance designed to help veterans lower the interest rate and payment on their current VA loan, or move from a variable rate to a fixed rate. It is called a streamline refinance due to the fact that you do not have to re-qualify for the new loan, as you would typically have to do when refinancing.
Do I Qualify For an IRRRL? – The qualifying requirements are far less demanding for a VA Streamline than for a VA purchase or VA cash-out refinance. Many banks do not consider your current credit score or credit history, income or assets when evaluating an IRRRL. If you have been on time with your existing VA mortgage over the previous 12 months you may qualify. It is always best to inquire with a mortgage professional to assess your individual situation.
What if I am upside down in my mortgage? – Though the VA does not require an appraisal to be done on your home, many banks have imposed appraisal requirements. It is important to present your individual situation to a mortgage professional to determine whether an appraisal is necessary.
How much does it cost? – Typically any costs associated with a VA Streamline can be rolled into the new loan, so the borrower will incur no “Out-of-Pocket” expenses. The VA will even allow these fees to take your new loan amount over the VA Loan limit of $417,000 if necessary. The VA also limits what lenders can charge. Here is a break down of the allowable fees.
- Origination Fee – Maximum 1% of loan amount
- VA Funding Fee – .5% of loan amount. If the veteran is disabled, this fee may be waived
- Title Insurance & Examination – Varies by state and home value, but generally runs between $1000 and $1600.
- Recording Fees – Varies by county, typically in the neighborhood of $100.
- Credit Report Fee – Typically $20-$35
These are the typical fees you would see on a Good Faith Estimate for a VA IRRRL; other fees may be allowable for particular situations.
In addition to these fees, the lender will require that you setup a new impound account to pay your property taxes & homeowners insurance. If there are any reserves in your current impound account, they will be refunded to you.
How do I know if I should refinance? – Generally the best way to assess a fixed rate-to-fixed rate refinance is in terms of how long it will take for the amount of your monthly mortgage payment savings to equal the additional amount added to your loan for refinancing. For instance, if it costs $4000 to refinance and you will save $200/month after the refinance then the period to recoup is $4000 divided by $200, or in this case 20 months. If you plan to stay in your current home a minimum of 5 years, then it is well worth refinancing as your savings will far exceed your costs. On the other hand, if you were planning to relocate in a year and a half, then refinancing would be a poor choice.
When going from a Variable Rate to a Fixed Rate, your payments may actually go up. In this case the veteran needs to assess the risk of the interest rate rising on his or her current variable rate loan before refinancing.