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The VA Streamline Refinance and Interest Rate Reduction Refinance Loan

Some Veterans who have already taken advantage of a VA loan may find that their existing loan terms no longer work for them. That doesn't mean they're out of options. The VA Interest Rate Reduction Refinance Loan (IRRRL) allows existing VA borrowers to quickly and easily refinance their mortgage to a new loan.

Wondering if a VA IRRRL loan might be a good option for you? Let’s cover the basics of VA IRRRL eligibility and what to expect during the process.

What Is a VA IRRRL?

In simplest terms, a VA IRRRL, also referred to as a VA Streamline refinance, is a method that helps existing Veteran homeowners refinance their current VA loan into another VA loan with a different rate or mortgage terms. Streamlines are available to current VA loan borrowers who want to lower their monthly payments by getting a new interest rate. This option is also available for those who have an adjustable-rate mortgage and want to stabilize their monthly payment with fixed-rate financing.

Of course, there are plenty of refinancing options on the market. However, the VA IRRRL has a simplified process. It's a low-hassle refinance option with minimal paperwork and little to no costs.

VA Streamline Refinance Eligibility

A VA Streamline refinance is only available to current VA borrowers, and you must use it to refinance your existing VA-backed home loan. You don't necessarily need to live in that home anymore, but you'll need to provide proof that it was your primary residence at one point. The VA also requires that your new loan provide immediate financial benefits, such as a better interest rate, lower monthly payment or a switch from a variable to a fixed rate.

If you change from an adjustable-rate mortgage to a fixed-rate one, this will stabilize your monthly payment and make it more predictable. Note, that it could lead to a higher interest rate than what you currently have.

The rest of the process is relatively easy. You won't need to provide your VA Certificate of Eligibility again, since it's already on file under your current loan. With some lenders, you can even skip the credit check and VA appraisal and submit minimal paperwork.

Keep in mind that you cannot take out any cash against your existing home equity with a VA IRRRL. If you'd prefer to cash out some equity, you may want to look into a VA Cash-Out refinance.

How Does a VA Streamline Refinance Work?

As mentioned above, the key to a VA IRRRL is that you must be an existing VA borrower who stands to benefit from refinancing. You can't refinance a non-VA mortgage with a VA IRRRL, nor can you refinance simply to switch lenders. There must be an immediate financial benefit to you.You'll also pay very few or no out-of-pocket costs with a VA Streamline refinance. The VA funding fee for an IRRRL is only 0.5% of the total loan amount, compared to 1.25% to 2.15% for your initial VA loan. This can also be rolled into your new loan so you don't have to pay it up front, but keep in mind that you'll pay more interest over the life of the loan.

VA IRRRL Pros and Cons

The VA Streamline refinance can be incredibly beneficial for those looking to lower their interest rate or monthly payment. However, like with all mortgage products, there are advantages and disadvantages to the IRRRL.

Pros of VA Streamline Refinance

  • Lower interest rate: The most common reason homeowners refinance their VA loans is to secure a lower rate. If rates dropped since you initially financed your home, this might be a good option for you.
  • Lower monthly payments: A lower interest rate on your VA IRRRL can mean lower monthly payments. Your payments may also be lower due to extended loan terms. Even if you don't lower your payment but switch to a fixed rate, the more predictable monthly payment may be beneficial.
  • Change in mortgage terms or length: If you refinance into a longer mortgage structure, your monthly payment could decrease. For instance, if you have 25 years left on your current VA loan and refinance the same amount over 30 years, you'll pay less each month.
  • Low VA funding fee: With a VA Streamline, the VA funding fee is always 0.5% of the loan amount. If you receive service-connected disability compensation, you may even be exempt from a funding fee entirely.

Cons of VA Streamline Refinance

  • Limited eligibility: You must refinance an existing VA loan to qualify for an IRRRL, and you must be able to demonstrate that you'll benefit financially.
  • Closing costs: Refinancing comes at a cost. You may not have to pay this up front, but if you roll the VA funding fee or your closing costs into your loan, it will cost you more interest in the long run and raise your monthly payments.
  • Mortgage length: If you extend your mortgage timeline by refinancing for a longer term, it will take longer to pay off your loan. It could also cost you more total interest over the life of the loan, even if your rate is lower.
  • Applicable only to current, VA-financed property: An IRRRL is only applicable to existing VA mortgages for properties you currently own as a primary residence. You can't use it to refinance a mortgage on a rental property you own.

VA IRRRL Funding Fee and Closing Costs

Refinancing your mortgage usually isn't free, and VA IRRRLs are no exception. When you take out a VA Streamline loan, you'll typically need to pay many of the typical fees, including an origination fee, title fee, flood zone determination fee and more.

Most borrowers will also have to pay a VA funding fee. However, this is a fairly reasonable cost. For example, on a $250,000 mortgage, your funding fee would be $1,250.

You also have the option to roll the funding fee and closing costs into your total loan amount. However, if you choose this option, you won't decrease your monthly payment as much.

Is the VA IRRRL Program Worth it?

The VA IRRRL is one of the best options available for existing VA borrowers who want to take advantage of lower rates or stabilize their monthly payments. It offers many of the same benefits of a standard VA loan, while also making it easy to quickly refinance without much hassle.

A VA Streamline isn't for everyone, though. If you're not a current VA borrower or can't gain some immediate financial benefits, it won't be a good fit.

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