Is securing a VA rate-and-term refinance on your to-do list? If it’s not, should it be? Taking a little time to explore this option and its potential pros and cons can help you decide.
“When it comes to mortgages, VA loans are about the best you can get,” according to Forbes. With their competitively low interest rates, relaxed qualification standards, possible 100-percent financing, and freedom from mortgage insurance, VA loans have many appealing qualities. It’s easy to see why both financial experts and borrowers are fond of the various purchase and refinance offerings from the loan program of the U.S. Department of Veterans Affairs (VA). What does the VA offer for those interested in a rate-and-term refinance?
The VA Rate-and-Term Refinance
What Is a Rate-and-Term Refinance?
You won’t spot the term rate-and-term if you make a quick perusal of the list of the VA’s loan products, but don’t give up too quickly. As The Truth About Mortgage explains, a rate-and-term refinance is a refinance loan that replaces an existing mortgage with a new loan that offers a lower interest rate or a different term. It may also allow you to switch loan products to secure more favorable terms. For example, borrowers who want to swap an adjustable-rate mortgage for a fixed-rate mortgage might find that a rate-and-term refinance is the perfect tool for the task.
The VA Interest Rate Reduction Refinance Loan
What about a VA rate-and-term refinance? If you’re interested in improving the rate or term of your VA loan, a VA Interest Rate Reduction Refinance (IRRRL) loan might be just what you’re looking for. Also called a streamline refinance, VA-to-VA refinance, or IRRRL loan, this loan product offers a quick and easy way to refinance an existing VA loan into a new VA loan. It offers a great way for a qualifying homeowner to secure a lower interest rate and reduce their monthly mortgage payment.
The Advantages of a VA IRRRL
Why do some borrowers opt for a VA IRRRL? As MilitaryBenefits points out, part of the IRRRL’s appeal is that it presents borrowers with fewer hoops to jump through. An IRRRL can only be used on a property that you’ve previously used your entitlement on. Because you’re essentially reusing your entitlement on a property that was already deemed acceptable, you won’t need a new Certificate of Eligibility. In addition, no credit or underwriting package is required by the VA. What about the cost of refinancing? While the VA does charge most borrowers a funding fee, you have the option of eliminating any out-of-pocket expenses when you secure an IRRRL by rolling your closing costs into the new loan.
When a VA IRRRL Won’t Work
Although an IRRRL can be the ideal tool for many borrowers, it may not be the best choice for you. After all, there are certain situations where this form of financing simply won’t work.
As Benefits.gov makes clear, the IRRRL is only an option for homeowners who want to switch from an existing VA loan to another VA loan in order to either secure a lower interest rate or convert an adjustable-rate mortgage into a fixed-rate mortgage. Therefore, if your current mortgage isn’t a VA loan, you cannot use an IRRRL. Likewise, if you don’t want another VA loan, you’ll need to look elsewhere.
What if you cannot qualify for a lower interest rate? Unless you’re trading an adjustable rate for a fixed rate, you’re unlikely to get approved for an IRRRL. Are you hoping to cash out some of your home’s equity? An IRRRL won’t offer that option. While you can add up to $6,000 worth of energy-efficient improvements to the loan’s balance, according to Military.com, you cannot receive cash from the proceeds of this refinance product.
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Could a VA rate-and-term refinance get you closer to achieving your housing goals? Would a VA Cash-out Refinance loan or some other refinance product be a better match for your situation? When you’re ready to find out, the experienced professionals at PrimeLending: Manhattan, Kansas, would be happy to help you explore your options. We love learning about our customers’ unique goals and guiding them through the process of selecting the best loan product for their needs. How can we serve you? Contact us today to find out.
