DEFINITION of 'Interest Rate Reduction Refinance Loan (IRRRL)'

A mortgage refinancing program offered by the U.S. Department of Veterans Affairs (VA) to homeowners with VA loans. The VA Interest Rate Reduction Refinance Loan (IRRRL) is a VA-loan-to-VA-loan process, designed to allow homeowners to refinance a fixed loan at a lower interest rate or to convert an adjustable rate mortgage (ARM) into a fixed rate mortgage.

BREAKING DOWN 'Interest Rate Reduction Refinance Loan (IRRRL)'

Because only VA loans can be refinanced through the IRRRL program, the proceeds from the refinance cannot be used to pay for any non-VA mortgage. Borrowers can forgo up-front fees by rolling the processing costs into the loan amount or by accepting a higher interest rate. The property the mortgage covers does not have to be appraised in order to apply. 

If the homeowner has a second mortgage that is not a VA loan, the VA loan being refinanced must be the first mortgage. This requires the homeowner to subordinate the lien. While there is no cap on the amount a homeowner can borrow, lenders will consider the liability limits that the VA is able to assume when determining the final amount they are willing to lend. Veterans are typically entitled up to $36,000.

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