Which refinance fits your goal?
An Interest Rate Reduction Refinance Loan, or IRRRL, is a VA-to-VA refinance for changing the terms on an existing VA mortgage. If you need to borrow against equity or replace a non-VA mortgage with a VA loan, review the VA cash-out program instead.
| What to compare | VA IRRRL | VA cash-out refinance |
|---|---|---|
| Current loan | Existing VA-backed mortgage | Existing VA or non-VA mortgage |
| Occupancy | You certify that you live in or previously lived in the home | You must live in the home being refinanced |
| Cash from equity | Designed to refinance the loan terms without taking equity proceeds | May provide cash from eligible equity |
| Review | Confirm seasoning, applicable rate and benefit tests, and fee recoupment | Confirm VA eligibility, income, credit, appraisal, and applicable benefit and seasoning rules |
| Costs | Review the funding fee if applicable, lender and settlement charges, and any amount added to the balance | Review those same costs plus net cash proceeds and how the new balance compares with the payoff |
Compare the new balance as well as the payment
Suppose an IRRRL would cost $3,600 in fees you are using for a personal break-even estimate and save $150 per month in principal and interest. The simple break-even is 24 months. If fees are financed, compare the balance you’ll owe at your expected sale or refinance date as well. Ask the lender to show the formal VA recoupment calculation separately.
If your existing mortgage payoff is $400,000 and you need $40,000 for repairs, a cash-out refinance could replace that full $400,000 balance and increase the new balance to at least $440,000 before financed costs in this simplified example. Compare the cost of replacing the entire first mortgage with keeping it and using a separate home-equity option if available. Compare written terms using the same borrowing need and time horizon.
Related reading VA refinance seasoning and request a second opinion.
Sources
VA IRRRL, VA cash-out refinance, and VA Lenders Handbook, Chapter 6.