The Department of Veterans Affairs (VA) extends its helping hands to financially-challenged Veterans who have taken a VA-backed home loan. After serving the country, our Veterans truly deserve to get all the help they need to have a comfortable living back here at home. Through the Interest Rate Reduction Refinance Loan or IRRRL, it is possible for Veterans to streamline refinance their current VA-backed loan, especially nowadays that interest rates are becoming more favorable to borrowers.
Why you may want an IRRRL as a Veteran?
Last August, CNBC reported that the average rate on the popular 30-year fixed mortgage hit 3.70%. That meant Veterans who could qualify for a refinance through IRRRL may lower their current interest rate by 0.75 percent. Veterans who have an adjustable or variable rate mortgage may also consider getting an IRRRL if they want to move to a fixed interest rate mortgage, to make their monthly payments stable until the end of their loan. An IRRRL allows eligible Veterans to replace their current loan with a new, favorable one under different terms.
As a Veteran, you may be eligible for an IRRRL if you have an existing VA-backed home loan that you want to refinance. You must also prove that you’re currently living, or used to live, in the home covered by the loan. However, your mortgage holder must agree to make your new VA-backed loan the first mortgage if you took a second mortgage on your home.
Watch out for these red flags if you plan to get an IRRRL
The VA designed the IRRRL to lessen the burden of Veterans and active service members who are having difficulty making monthly payments to their VA-backed home loan. However, some lenders might use aggressive marketing tactics to lure you to refinance your current loan. According to the Consumer Financial Protection Bureau, here are the most common “too good to be true” tactics some lenders employ that could increase your overall principal balance:
- Offer you to skip up to two mortgage payments – The VA prohibits lenders to advertise mortgage payment skipping. Certain lenders nevertheless use this as a selling point if they cannot offer a cash-out or lower your interest rate significantly.
- Offer you an escrow refund – Some lenders may promise that you can get a cash refund from your escrow account. Since the refund amount you can get is dependent on the amount left in your account after closing, you may either get lower than what’s promised to you or worse, you may even have to make higher monthly payments to make up for the shortfall.
- Offer you extremely low-interest rates with undefined specific terms – Some lenders advertise a low-interest rate that may give you the impression that it is for a 30-year fixed rate when, in fact, the advertised rate applies to either an adjustable-rate mortgage or 15-year fixed-rate mortgage.
- Employ aggressive sales tactics – Some aggressive lenders might also pressure you to refinance your current VA loan just a few months after closing. Lenders often do this by calling you multiple times or sending you cleverly designed refinance offers.
As a Veteran, it is critical that you question any offers that you may find highly favorable to you. If you respond to any of the above potentially misleading lender tactics, you will end up with either a very limited VA mortgage loan or an increased loan balance.
3 simple steps to refinance through IRRRL
If you think you’ll likely benefit from getting an IRRRL, and you understand the red flags that you want to avoid, simply follow these steps to get an IRRRL:
- Shop and compare lenders – Compare interest rates, fees, and terms of up to three different lenders for you to get the best rates.
- Give your original Certificate of Eligibility (COE) – You must give the original copy of your COE that you used in taking your current VA-backed home loan.
- Follow the lender’s IRRRL loan closing process and pay closing fees – If you get an IRRRL, you can include closing fees in the new loan, or your lender may pay your closing fees if the new loan you get has a high-interest rate.
Getting an IRRRL is beneficial if you’re having trouble making monthly mortgage payments. Although applying for an IRRRL is easy, it is important that you watch out for potentially misleading marketing tactics by some lenders that may lead to an increased loan balance.