Homeowners are reminded of the effect of interest rates each month when paying their mortgage. As interest rates change, mortgage holders are likely to compare their loan rate with current market rates. Military personnel with home loans guaranteed by the Department of Veterans Affairs may take advantage of a VA refinance program designed for holders of VA mortgages.
The Department of Veterans Affairs provides a refinance option referred to as an Interest Rate Reduction Refinance Loan. The acronym IRRRL is widely used. There must be an existing Veterans Affairs loan on your home in order to take advantage of an IRRRL.
The military eligibility that qualified you for your current VA mortgage is reused for the refinance loan. The IRRRL may be obtained from any VA-approved lender. As with your current VA loan, the costs of an IRRRL are relatively attractive in comparison with some other types of mortgages.
Private mortgage insurance is not a requirement for guaranteed VA loans. An up-front funding fee is added to most VA loans. The funding fee is a percentage of the IRRRL loan amount. The Department of Veterans Affairs publishes a chart containing the fees for different types of loan recipients. The funding fee for an IRRRL may be financed as a portion of the new loan.
A lender is likely to need assurance that a borrower is able to meet the ongoing financial obligations of the new mortgage. Although lenders may have different guidelines, the VA does not require an updated credit check or appraisal. The market value of the home must be as much, or more, than the new loan amount.
In addition to the interest rate, you may want to adjust the length of your mortgage. If your current rate is adjustable, you might prefer to secure a new loan to lock in a fixed rate. An IRRRL is a refinance of debt only, so the owner receives no cash at closing for home equity.
If there is a second mortgage, that lender must agree that the VA loan will be considered the first lien in the event of foreclosure. Even though you are not able to withdraw equity through an IRRRL, the loan may be increased by the cost of specific home improvements.
An IRRRL may be increased by up to $6,000 to include the cost of certain energy-efficient home improvements. The government guarantee enlarges to include the additional mortgage amount, but your remaining VA loan eligibility is not affected.
You don't necessarily have to still reside in the house to qualify for an IRRRL. The refinance may be applied to a rental property in which you previously lived. Contact a mortgage specialist for further information about the advantages of refinancing a VA home loan.
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