The Interest Rate Reduction Refinancing Loan (IRRRL) offers current VA mortgage holders an excellent opportunity to take advantage of low interest rates. But before you call your lender, there's a few things you need to know.
- The new interest rate must be lower than your existing rate. To make it worthwhile your new interest rate should be at least 1 % lower than your existing rate.
- Under the IRRRL program, you cannot receive cash proceeds from the refinance. This means that if your existing mortgage is $90,000 you cannot tack on $20,000 from the home's equity for a remodeling project. However, you can add up to $6,000 for energy efficiency improvements.
- You do not need to reapply for a Certificate of Eligibility. The lender can electronically receive confirmation from the VA.
- The VA does not require an appraisal or credit check. However, your lender might require these documents.
- If your current mortgage is an FHA or Conventional loan, you cannot refinance through the IRRRL program.
- You cannot combine your existing mortgage and a second mortgage under the IRRRL program.
- You don't need to pay any upfront fees. All refinancing costs can be built into the loan.
- Contrary to popular belief, you do not need to refinance with the lender holding your existing mortgage. Any lender can provide you with an IRRRL.
- Fees and terms vary among lenders and unfortunately some lenders prey upon Veterans. According to the VA, "Some lenders may say that VA requires certain closing costs to be charged and included in the loan. The only cost required by VA is a funding fee of one-half of one percent of the loan amount which may be paid in cash or included in the loan."
Refinancing isn't the best solution for everyone. However, for homeowners who want to lower their mortgage payments, especially if their current interest rate is at least 1% above the going rate, it may be an option worth looking into.