VA IRRRL & Cash-Out Refinance: How Veterans Can Lower Monthly Payments

For veterans who are currently in a home that is financed with a VA loan, when interest rates drop, they often wonder what their VA loan refinance options are. The VA loan program has two basic options for VA loan refinancing: the VA IRRRL or cash-out refinance and the VA streamline refinance.

VA Loan Cash-Out Refinance

The VA loan cash-out refinance is popular with veterans who want to refinance their house and turn their home equity into cash at closing. In some cases when qualified, homeowners can refinance up to 100 percent of their property value for mortgage debt. Other times, homeowners can refinance up to a lower percentage and use the cash to cover debt payments, etc. One of the most popular reasons for getting cash out of the equity in their home for many veterans is for home improvements or to consolidate other debts they may have.

The VA cash-out refinance simply replaces the existing mortgage. It does not function like a home equity loan, which is a second loan that runs alongside the current loan, although the two are often confused.

As of the writing of this article, the following regulations apply:

When using a cash-out refinance, the standard VA loan underwriting and credit process apply.
Closing costs and funding fees can be rolled into the loan amount.
Applicants must certify that they intend to occupy the refinanced property.

VA IRRRL (Streamline Refinance)

The VA IRRRL (interest rate reduction refinance loan) or streamline refinance program is the easiest way for a veteran with a VA loan to refinance their home if they don’t want any cash out and just want to lower their rate. The VA streamline refinance is designed to allow veterans to reduce their interest rate when rates are lower with the minimum amount of paperwork (which is why it is called the “streamline refinance” program). With the VA IRRRL, there is no appraisal required in some cases, no need for another Certificate of Eligibility, and few out-of-pocket costs. For borrowers who have an FHA loan, there is also an FHA streamline refinance that has similar guidelines to the VA streamline refinance program.

The main stipulations of this type of refinancing are:

The borrower cannot receive any cash back from the refinance.
The borrower must certify that they currently occupy or have previously occupied the property.
The monthly payment must be lower than the previous loan’s monthly payment. The only exception is for those who refinance an ARM to a fixed rate mortgage.
The borrower must be current on their mortgage with no more than one 30-day late payment within the past 12 months.

Generally speaking, if you can save even 1% on the interest rate on your VA loan, then it could potentially add up to hundreds of dollars in savings each month and thousands of dollars each year depending on how big your loan amount is.

If you are interested in learning more about the VA IRRRL or cash-out refinance, be sure to contact a lender who is an approved VA lender or visit the VA loan official website here.

Have any questions about this refinancing program? Any info you’d add?

Let me know with a comment.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.