IRRRL
All right, let’s get into our first type of refinance loan. And this is the interest rate reduction refinance loan, also known as the IRRRL, Interest Rate Reduction Refinance Loan. It’s taken me a couple of times to say it. So here we are. And the purpose of the loan is in the name. The purpose is to refinance and reduce the veteran’s interest rate.
Benefits
One of the benefits, of course, is it’s going to save the veteran money. They have a lower interest rate. They should have a lower mortgage payment as well. Another benefit is that there’s limited underwriting and no appraisal required. So this should make the process even faster. Also, if they have a lender that has automatic close authority, it’s going to happen even faster than that.
Does it Affect your Entitlement?
So it’s a pretty quick, streamlined refinance type of loan. There is also no impact on the entitlement that the veteran has currently used. So they don’t have to worry about their secondary entitlements or their bonus entitlements being touched. It’s still there if for some reason they need to use that later on in the future, they don’t have to worry about that.
So with this loan, there are also some speculations as well. One of them is an absolute, we have to reduce the veteran’s interest rate. That has to happen. The veteran can pay reasonable discount points towards the loan. This isn’t a cash-to-borrow type loan. The VA has a separate loan category for that, which we’ll get into. But this isn’t one of those types. And then most importantly, it’s only VA loans to VA loans. They cannot take a conventional loan refinancing under this program for a lower rate, it has to be VA to VA. So that’s probably the only place they’re really limited regarding refinancing with this loan type. But there’s another type that they can use to do that.
Additional Cost
In the end, what the veteran needs to keep in mind is that there will be an additional cost, of course, to refinance this loan under this new tier. And so they’ll need to keep in mind the closing costs because it is up to the lender what closing costs they charge. The lender may even charge the VA funding fee to the veteran.
So that can add up to thousands of dollars wrapped up in the loan. They divide the closing costs by how much the veteran should expect to save each month on their monthly mortgage payment. And then they’ll be able to decide whether or not this is a good loan program for them. But overall, it’s great if a veteran bought a home five or six years ago and was able to take advantage of the lower rates just two years ago, then this would be the perfect loan type for them to use.
Overall, it’s a great program, that benefits the veteran, but remember, it’s only VA to VA.
