What is the Interest Rate Reduction Refinance Loan (IRRRL)?
Bottomline: The IRRRL refinancing loan for VA (Veteran Affairs) mortgages doesn’t require lengthy application processes. By using this opportunity you may be able to secure a new mortgage with smaller monthly payments or convert your 30-year loan to a 15-year one. Basically, if you can find some benefit to your overall financial strategy in regards to your VA Home Loan, you may be able to use the IRRRL. But before we get into potential strategies in which you may use the IRRRL, let’s go over some of the facts about the program.
IRRRL can be processed and become effective almost immediately since the VA doesn’t receive an approval process.
VA will not require any new appraisals on the property, update credit information, and cosigners/underwriters. The VA already approved you the first time. Why would they stop you from executing a more financially tactical course of action?
Any costs associated with processing the IRRRL can be rolled up into the new loan.
The new loan must either results in overall reduced monthly principal, interest, taxes and insurance (PITI) payments or lesser loan terms, such as switching from a 30-year adjustable rate mortgage (ARM) to a 15-year ARM.
The New IRRRL must have a reduced interest rate unless you negotiate for a fixed rate loan in which you predict that the adjustable rate will eventually adjust higher at some point in the future.
You can include up to approximately $6,000 in energy efficiency improvements to your home to be rolled into the new loan.
There will be no cash received upon securing the IRRRL, and you will have to ensure all fees and improvements are covered in the loan in order to avoid any out-of-pocket payments.
You can’t have been delinquent on any of the payments on your VA loan within the last 12 months.
Applications of the IRRRL
A reduced interest for your loan will obviously have long-term benefits to your financial strategy. In Oregon, predicting which markets will trend upwards, downwards, or stabilize could save you tens of thousands of dollars by the end of the term. The opportunity to switch between a fixed or adjustable rate may also provide you a future boon if you pay attention to market variables, especially in regards to increased housing inventory.
If you used your VA Home Loan as a mechanism to secure a multifamily home where you reside in one of the units to satisfy VA primary occupancy requirements, you are focused on increasing that monthly passive income. In this strategy, you are focused less on the long-term financial benefits, and instead focus on the month to month benefit of reducing your outgoing PITI payments. Your rental rates on your units don’t change, but the PITI on your property does. So if you had a positive cashflow of $300, but as a result of the IRRRL reduced PITI by an additional $100 then your positive cashflow is now $400. Simple, yes?
Summers are getting hotter, and winters are getting colder. A properly weatherized home will help you effectively maintain the internal temperature of the home, and, therefore, reduce your costs as your heating and air conditioning units won’t have to work as hard. The IRRRL will also allow you to replace your older units which should also reduce operating costs. You can incorporate the installation of solar panels, and potentially benefit from renewable energy tax credits. In all instances these improvements potentially warrant the increase in rental prices if you have a multifamily home, and rent out the other units.
While you are permitted to receive benefits stated within the conditions offered by the VA under the IRRRL, it only means, just as the regular VA Home Loan does, that the VA will protect the lender under these conditions should you default. When it comes to actually getting the loan, you will need to put in the effort to get that better rate, and get them also agree to the new terms. You must do this because being protected doesn’t necessarily mean they will approve of the loan, or atterms, you would prefer, as they need to verify that such an arrangement is financially beneficial for them. Banks are a type of business after all, and they make their money on good capital investment decisions. To ensure the best new IRRRL loan terms it would be best to improve your credit score and shop around with many VA/IRRRL approved lenders to find the best arrangement.