What Is an IRRRL?

What is the definition of an IRRRL?

IRRRL stands for “Interest Rate Reduction Refinancing Loan” and is part of the VA loan program. IRRRLs are typically used to reduce your current mortgage rate to a lower rate, or to convert an adjustable rate mortgage (ARM) to a fixed rate mortgage. Sometimes an IRRRL can be referred to as a “VA Streamlined Refinance” because the approval process can be significantly simplified. Because an IRRRL is for current VA Loan holders, you can leverage the paperwork and COE — Certificate of Eligibility — to streamline the process of the IRRRL. 

Why should I consider an IRRRL over regular refinancing?

There are some real benefits in choosing an IRRRL over traditional refinancing. Here are a few of those benefits and why an IRRRL might be right for you:

• Lower Interest Rate. You may get a better interest rate with an IRRRL vs. traditional refinancing. That will save you money on your monthly payment and possibly lots of money over the life of the loan.
• No Appraisal. This speeds up the process of your loan and can also benefit you if home values temporarily dip. Accordingly, no appraisal means no appraisal fee, which saves you some money. (Note that while the VA itself does not require an appraisal, many lenders do require an appraisal for a VA loan.)
• No Out-of-Pocket Costs. Yes, there are costs involved with an IRRRL, but you can roll them into your new loan, which saves you the need for additional cash at closing.

How does an IRRRL loan work?

First, you’ll need to meet the VA Loan funding requirements. Make sure to understand VA loan eligibility requirements, or visit the US Department of Veterans Affairs for complete information on VA loans and COE. An additional benefit of a VA IRRRL loan is that you don’t need to currently live in the house you’re looking to refinance so long as you previously lived there.

There is a funding fee when using an IRRRL, and for most borrowers the fee for an IRRRL is .5% of your loan. Remember that you may qualify for a funding fee exemption if you are:

• Entitled to receive compensation for a service-related disability
• An active duty service member who has received a Purple Heart
• A spouse of a veteran who died while serving or through a service-related disability

As you’re going through the process of obtaining an IRRRL, there are some things to consider:

• You can only refinance to a lower interest rate using an IRRRL, unless you are moving from an adjustable rate mortgage (ARM) to a fixed rate mortgage.
• If you want to reduce your interest rate more, you can pay discount points. A discount point is a percentage of the mortgage up front in a down payment. You can pay up to two points with an IRRRL.
• If you currently have a second mortgage on your home for any reason, the lender of the second mortgage must agree to be the second mortgage holder under the new refinancing.
• Occupancy is not necessary as mentioned above, so long as you once lived in the home.
• Of course, the lender will still perform a credit review of your finances to determine financial eligibility.

   

Can I get cash out from an IRRRL?

The short answer is no. Because this loan is streamlined, it’s not meant for those borrowers looking to refinance to get cash out. 

Is it worth it to refinance to an IRRRL?

In general, you’ll need to weigh your options, needs, and financial circumstance to determine if it’s worth it for you to refinance to an IRRRL. Some general things to consider whenever you are considering refinancing:

• What are your goals in refinancing? 
  • Reduce your interest rate
  • Cash out — if so, you should look at another refinance option
  • Change from an ARM to a fixed rate mortgage
• Use a refinance calculator to determine if refinancing makes sense for you.
• Understand how long you’re going to continue owning the home and calculate the potential savings in refinancing vs. the cost to refinance. 

Because everyone’s financial situation and needs are unique, it’s important to review and understand all of your options before you refinance. It makes sense to first do your homework, and then meet with a loan officer who can guide you through the options and steps to an IRRRL refinance.

To learn more about PenFed and refinancing options that are right for you: