In this article we will take a closer look at the IRRRL program pros and cons. A mortgage is the biggest source of debt most people acquire in their lifetime. Large monthly payments plus interest can place a heavy financial burden on veterans and service members. That is why the VA has created programs like the IRRRL. The VA IRRRL program is one of the best options available for veterans; however, it might not be the right choice for everyone.
What Is the IRRRL?
Let’s start by explaining what the VA IRRRL is. The Interest Rate Reduction Refinancing Loan (IRRRL) is a refinance option that is required by law to lower a veteran’s interest rate. The only time the IRRRL may not lower your interest rate is when the loan changes from an adjustable rate mortgage to a fixed rate.
The VA IRRRL, which also called the VA streamline refinance loan, applies only to current VA mortgage holders, allowing them to have more money each month to spend on projects, family trips, or other bills. While these are all upsides to the IRRRL, the loan also has some disadvantages that might not make it worthwhile, so it’s important to weigh the pros and cons before applying for an IRRRL.
Benefits of the VA IRRRL
One of the benefits of the VA IRRRL loan is that mortgage holders do not have to re-qualify for the VA program. The IRRRL does not require the lender to run another credit report to assess the mortgage holder’s credit worthiness, nor are they required to do other underwriting like an appraisal of the home, so it makes no difference if the home’s value has gone down. The holder also does not need to provide the lender with their Certificate of Eligibility a second time; since the borrower already has a VA loan, they have already proven their eligibility for VA benefits.
Another advantage of the IRRRL is that VA mortgage holders do not have to pay up front for funding fees or closing costs. These can be included in the loan balance and paid off monthly. Disabled veterans and their spouses may also qualify for a funding fee waiver.
Any VA-approved lender can process the streamline refinance loan. Some VA lenders will enforce their own rules and regulations on top of those of the VA. In the case of an IRRRL, these lenders might require some additional underwriting or closing costs. Here at Low VA Rates, however, we follow the VA handbook to the letter, and require nothing except that which the VA requires.
Drawbacks of the VA IRRRL
Closing costs and funding fees are some of the disadvantages of the VA IRRRL. Borrowers are able to roll their closing costs into the new loan balance; however, this just means paying them later with interest. Still, some veterans may decide that paying more money over time is worth paying less per month. This is especially true if they plan to live in their home for a long time. Such might be the case for retired veterans living in their final home. Active military members who move around frequently might see the extra cost as an unnecessary burden.
Refinancing a VA loan also means restarting the loan term. If a VA holder was five years into a thirty-year mortgage, the streamline refinance loan would start the thirty-year term over. Active military families who do not reside in one house for long might not benefit from this do-over.
Another disadvantage of the VA IRRRL is that holders cannot receive cash from loan proceeds. Instead, the purpose of the IRRRL is to lower the borrower’s interest rate and save veterans and service members a substantial amount of money per month. However, the VA cash-out refinance is a great option for those looking to pull equity out of their home.
Is the IRRRL the Right Choice for You?
Veterans and servicemembers should assess their financial situation and their finance goals to see if the IRRRL program is right for them. We at Low VA Rates believe in the IRRRL and its benefits; we’ve seen how it works in veterans’ lives and are eager to share our knowledge with all our clients! To learn more, give us a call at 855-223-0705.