Refinancing via the VA’s Interest Rate Reduction Refinance Program or IRRRL, also otherwise known as the VA Streamline Refinance Program allows the homeowner to lower his or her mortgage payments by reducing the interest rate attached to the loan. Another reason for choosing this program is to transfer from a variable-rate mortgage into the more stable fixed-rate option.
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A form of homeowner support
At its core, the aim of the program is to help the borrower revamp the structure of his or her mortgage so that the resulting arrangement is more financially manageable or comfortable for his or her situation. Still, even with all its perks – no verification of income, employment, or assets, no appraisal or credit underwriting, the program is not immune to costs at closing.
But staying true to its reputation, even though there are indeed costs involved to close a VA IRRRL, these costs can be rolled into the loan. This is stated in the VA Lender’s Handbook,
Chapter 6.
The following are the typical costs associated with a VA Streamline Refinance:
- Origination fee which is capped at 1 percent of the loan amount
- Discount points
- Prepaid taxes and Hazard insurance
- Title examination fee
- Flood zone determination
- Environmental endorsements
- Recording fees
- Special mailing fees (Federal Express or similar services)
- VA Funding Fee
*These are the universal fees and may not be reflective of all requirements set by individual lenders.
The VA however, does place some limits on the costs of closing, especially on discount points. There’s a cap of two discount points that can be included into the loan amount.
If you opt to roll the closing costs into your loan, the VA gives the lenders the authority to adjust the interest rate as long as the original rate principle of the program is not violated.
Evaluate your financial capacity
If you are eyeing the IRRRL option for your refinance plan, it’s imperative that you evaluate which parts of the costs you are willing or are capable of paying upfront and which ones you should roll into the loan. Remember that all the rules of the loan are aimed at helping you reduce your payments. If you include too many add-ons, or roll everything into the new loan amount, you might end up overriding the benefits and paying more than you originally held.
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