VA IRRRL Streamline Refinance: Seasoning, Net Tangible Benefit and Recoupment

What an IRRRL is

An Interest Rate Reduction Refinance Loan (IRRRL), often called a VA streamline, replaces your current VA loan with a new VA loan. The usual goal is a lower rate and payment, or switching from an adjustable rate to a fixed rate. VA does not require a new appraisal or income check for an IRRRL, though many lenders ask for one anyway.

Who can use it

• You must already have a VA loan on the home.
• You must live in the home now, or have lived there before. That means you can IRRRL a home you moved out of and now rent, like after a PCS.
• If there is a second mortgage, its holder must agree to stay in second place.
• You can only refinance a VA loan into another VA loan with an IRRRL. To refinance a non-VA loan, use a VA cash-out refinance.

Seasoning: how soon you can refinance

Federal law says VA cannot guarantee a refinance until the later of these:

• You have made six consecutive monthly payments on your current loan, and
• 210 days have passed since the first payment due date of that loan.

This rule stops lenders from flipping Veterans into new loans over and over.

Net tangible benefit

The new loan must clearly help you. For a rate drop:

• Fixed rate to fixed rate: the new rate must be at least 0.50% lower.
• Fixed rate to adjustable rate (ARM): the new rate must be at least 2.00% lower.

Moving from an ARM to a fixed rate can count as a benefit by itself. Your lender must give you a net tangible benefit test and explain it.

Recoupment: 36 months

The lender must show that the fees and closing costs you pay will be earned back through lower monthly payments within 36 months. Taxes, escrow deposits and the VA funding fee are left out of this math.

Example

If closing costs are $3,000 and your payment drops by $150 a month, $3,000 divided by $150 is 20 months. That passes. If your payment only drops $50, it would take 60 months, which fails.

Discount points

You can buy down your rate with points, but there are limits. Points must be paid at closing. They can only be added to the loan if the new loan-to-value is 100% or less (for one point or less), or 90% or less (for more than one point).

Costs

• Funding fee: 0.5% of the new loan, unless you are exempt.
• Closing costs: can be rolled into the new loan or covered by a slightly higher rate.
• No cash out. An IRRRL is for lowering your rate or stabilizing your loan, not for pulling out equity. If you want cash, look at a VA cash-out refinance instead.

Step by step: doing an IRRRL

1. Check seasoning. Count your payments and days since your first due date.
2. Get quotes from three lenders. Compare rate, fees and payment, not just the headline rate.
3. Run the recoupment math yourself: total costs divided by monthly savings.
4. Confirm the rate drop meets the 0.50% or 2.00% rule.
5. Lock your rate with the best offer.
6. Sign the net tangible benefit disclosure and review the Loan Estimate.
7. Close. Your old loan is paid off and the new one starts.

Watch out for

• Resetting to 30 years. A lower payment can still cost more over time if you restart the clock. Ask about a shorter term.
• Skipped payment promises. You are not really skipping a payment; interest is just built into the new loan.
• Frequent offers. If you get IRRRL mailers soon after closing, check the seasoning and recoupment rules before you respond.

Bottom line

An IRRRL is one of the cheapest, simplest ways to cut your mortgage rate. The law's seasoning, benefit and recoupment rules protect you, but you still need to compare offers.