Refinancing VA Loans: Reducing Your Mortgage

Homes are expensive, and paying off loans takes a great deal of time and money. Any veteran thinking about refinancing their house, or who just needs a way to reduce their interest rates, should look into an Interest Rate Reduction Refinance Loan (IRRRL), which can reduce the interest rate when a VA home loan is refinanced.

This loan is only an option on real estate that was originally purchased with a VA loan, but they're relatively easy to acquire. If you currently have an adjustable rate mortage, you may opt for a fixed mortage rate when applying for the IRRRL. There's no appraisal, credit underwriting, or certifiicate of eligibility requirement, and you don't need to use any money out-of-pocket.

Currently, interest rates on these loans are low, so it's worth learing about refinancing opportunities. Frank Nothaft, vice president and chief economist at Freddie Mac. says that, "On average, borrowers who refinanced reduced their interest rate by about 1.8 percentage points." This means that, on average, homeowners save about 33 percent on their interest rates.

Below are some more details about qualifying for and using an IRRRL, from the Houston VA Loan Center:

• The new loan must be at a lesser interest rate than the old VA loan except when refinancing an existing adjustable rate mortgage with a new fixed rate mortgage.
• The dollar amount of guaranty applicable to the prior VA loan is transferred to the new loan.
• The minimum guaranty on an IRRRL is 25%.
• If the existing loan is delinquent, the IRRRL must be submitted to VA for prior approval.
• Although no underwriting is required, approval of new credit may be required by the trustee in a Chapter 13 bankruptcy.
• The veteran may not obtain cash proceeds.
• No portion of the loan proceeds may be used to pay off other debts.
• The new loan is limited to the balance of the old loan, the funding fee, up to $6,000 of energy efficient improvements, and allowable closing costs including not more than 2 discount points.
• The term of an IRRRL may not exceed the original term of the loan being refinanced by more than 10 years.
• The veteran, including active-duty service members stationed elsewhere, is able to satisfy the occupancy requirement by certifying prior occupancy.
• If the veteran whose entitlement was previously used has died, and the surviving spouse was a co-obligor, that spouse is considered a veteran for the purpose of the IRRRL.

For more on the IRRRL process, visit the Military.com Refinance section.