What is an Interest Rate Reduction Refinance Loan (IRRRL)
An interest rate reduction refinance loan (IRRRL) is a mortgage refinancing program offered by the U.S. Department of Veterans Affairs (VA) to homeowners with VA loans. The VA IRRRL is a VA-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. The interest rate on the new loan must be lower than the rate on the old loan, unless you’re refinancing an ARM to a fixed rate mortgage.
BREAKING DOWN Interest Rate Reduction Refinance Loan (IRRRL)
Interest rate reduction refinance loans can help veterans and military families refinance their existing VA loans to a lower rate, or to convert from an adjustable to a fixed-rate mortgage. 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 for the loan.
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. A subordinated lien is a loan that is reimbursed only after loan balances on senior debts are repaid in full following a default. A second mortgage is the most common form of a subordinate 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.
Key Features of an IRRRL
An IRRRL, also known as a VA streamline refinance program, allows borrowers to refinance an existing VA mortgage with limited restrictions compared to a standard refinancing process.
- Because the IRRRL refinance process is much more efficient, the program saves veterans and military families considerable effort, time and money.
- There is no minimum credit score and no home appraisal necessary with an IRRRL.
- The IRRRL provides borrowers with a lower mortgage rate, and no monthly mortgage insurance is required.
- There is no limit to how much money that one can borrow, and there’s no restriction on how much income a borrower can make to be eligible for the VA streamline program.
- The IRRRL program allows borrowers to refinance homes they previously lived in but that are now investment properties, rental properties, or second homes.