Does the VA Offer a Rate-and-Term Refinance?

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It does and you have probably heard of it. The U.S. Department of Veterans Affairs (VA) allows homeowners to get a better rate and thus reduce their monthly mortgage payments via the Interest Rate Reduction Refinance Loan or VA Streamline Program. This rate-and-term refinance of the VA can also be used to shorten or extend one’s loan term.

Refinance via Rate-and-Term

The rate-and-term is probably the most basic form of refinance. It’s a pretty straightforward transaction for those wanting to take advantage of historically low mortgage rates and/or do something with their loan term.

In the VA context, it is a requirement for the homeowner to get a rate lower than his/her existing one to be able to refinance. In connection, the homeowner’s new monthly payment must be lower than on his/her existing one.

To further lower your monthly payment, you can extend your original loan term to another 10 years but not to exceed 30 years.

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Exceptions to the IRRRL Rules

But, the IRRRL can take exceptions in situations where lowering the rate and payment is not possible. For instance, if the homeowner shifts to a fixed-rate mortgage from an adjustable-rate mortgage, the rate will increase because fixed rates are usually higher than variable rates with ARMs starting out really low.

The lowered monthly payment will also not apply when you refinance to shorten your loan repayment length. Shorter-term loans have higher monthly payments because the time to pay back the loan is cut by half, i.e. from a 30-year to a 15-year fixed-rate mortgage.

It’s the same thing when you take out an energy efficient mortgage that covers costs of installing solar panels or improving your home’s insulation. This EEM cost is included and amortized together with your first-lien mortgage being refinanced so expect to pay a higher new monthly payment compared with your old one.

Because the IRRRL is also a streamlined refinance, getting this rate-and-term refinance loan is made even easier. As to the cost, the VA usually has a limit to fees and charges allowed and these closing costs can be financed into the loan.

Are you ready to refinance? This way to lenders.

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