Understanding the Maximum Term for a VA IRRRL

Military borrowers who already have a loan backed by the U.S. Department of Veterans Affairs (VA) may be wondering whether they should refinance or not. The good news is, since you already have a VA loan, you may be able to take advantage of a refinancing option that’s only available to eligible veteran borrowers: A VA interest rate reduction refinance loan (IRRRL), also known as a VA streamline refinance.  

But if you’re looking to extend your term for potentially lower monthly mortgage payments, there are some factors and guidelines you need to keep in mind. Discover what you need to know about VA IRRRLs before you apply.

How Does a VA IRRRL Work? 

A VA IRRRL is a type of refinance that replaces your current VA loan with a new one, generally with more favorable terms. Borrowers typically use this type of refinance for its potential advantages, including minimal paperwork, no private mortgage insurance (PMI), lower interest rates and more.  

Many borrowers usually refinance with a VA IRRRL to get a potentially lower monthly mortgage payment with a lower rate or convert their adjustable-rate mortgage to a fixed-rate mortgage for more stable payments. Or, they may want to extend their term for potentially lower mortgage payments or shorten their term to pay off their loan quicker. 

If you choose to extend your term, keep in mind that the maximum term for a VA IRRRL is 10 years in addition to the original VA loan term, but it cannot exceed 30 years and 32 days. So, if you have a 15-year term, your new loan’s term cannot exceed 25 years.

Are You Eligible for a VA IRRRL?  

Depending on which lender you get your VA IRRRL from, eligibility requirements could vary. However, the VA has set these guidelines: 

• You must already have a VA loan 

• You must use the new VA IRRRL to refinance your existing VA loan 

• You must certify that you live in or used to live in the home covered by the VA loan 

• You must make the new VA loan the first mortgage if you have a second mortgage on the home 

Since requirements and documentation may be different from lender to lender, it’s imperative you speak with yours to understand what you specifically need to be approved for a VA IRRRL.

Impact of a Longer Term 

Lower Monthly Payments 

Refinancing for a longer term may work for you if you want potentially lower monthly payments. A longer term means The money you owe on your loan can be paid back over a longer period of time, meaning you may be able to pay less on a month by month basis. 

Increased Interest 

A longer term may also mean you would pay more in interest over time. If you’re paying interest for 10 years instead of five, that interest could add up and you could end up paying even more in interest than for your original loan.

Impact of a Shorter Term 

Pay Off Your Loan Sooner 

When you refinance for a shorter term, it may be because you want to pay off this debt sooner. If one of your financial goals is to pay down your debt as soon as possible, you may want to consider a shorter term. 

Increased Monthly Payments 

A shorter term typically means you will likely need to pay more on a monthly basis to pay off your debt as quickly as possible. If you consider this option, you likely want to review your budget to make sure you can afford this increased monthly payment.

VA IRRRL Fees and Costs 

The fees and costs for a VA IRRRL are typically the same as a regular VA loan with one limitation.  

VA Funding Fee 

The VA funding fee is a required cost for all VA loans. This fee is to help lower the cost of the loan for taxpayers since a down payment and private mortgage insurance (PMI) aren’t typically required for VA loans. 

Allowable Fees 

Any allowable fees including an origination fee, credit report fee and more may be included in your closing costs. For a more in-depth review of these fees, speak with your lender to get the full breakdown of your specific allowable fees. 

Discount Points

Discount points are where closing costs differ for a VA IRRRL. Discount points are fees you pay at closing in exchange for a lower rate. Typically, one discount point is equal to one percent of the loan amount. You may be able to pay for any amount of discount points for a VA IRRRL, but you can only have two discount points included in your loan.

What are the Steps to Refinancing? 

Be aware that not every loan process is the same for every borrower. Nonetheless, here are the general steps to a VA IRRRL: 

1. Work with a Lender Throughout the Process: To determine your eligibility, understand required documentation and get to closing as smoothly as possible, it may benefit you to work with a lender who is knowledgeable about and experienced with VA loans. This may help you tremendously, and you may already want to work with the lender you got your original VA loan from. 
2. Provide the Required Documentation: Learn what documents you need from your lender then organize and submit them as soon as possible. VA IRRRLs typically require less paperwork than other refinance options but there are still necessary documents your lender needs from you. 
3. Close on Your Refinance: Let your lender guide you through the loan process to closing day, pay associated fees and costs and close on your loan.

Is a VA IRRRL Right for You?  

A VA IRRRL may be right for you if you’re looking to get potentially more favorable terms on your current VA loan. But if you’re not sure it could work for you, it doesn’t hurt to speak with a professional to verify that you may be able to benefit from it. As an eligible VA loan borrower, you may be able to take full advantage of what the VA has to offer.