Refinancing a mortgage loan is easier and more common today than ever, and this is true for both traditional loans and VA loans. There are many reasons why you might want to refinance, whether you need cash to pay off other debts, or just want to get a lower interest rate on your current loan. The VA accommodates all of these needs by providing two different refinance plans: VA Cash-out Refinance Loan and Interest Rate Reduction Refinance Loan (IRRRL).
A cash-out loan is great if you need money now. Whether you want to buy a new home, pay tuition, or consolidate your debts, the money is yours to do with as you like. If your house is your primary residence and you already have a VA loan, you can qualify to refinance up to 90% of the appraisal value. Just as with a traditional loan refinance, your new mortgage pays off the old debt on your house and the cash you receive is borrowed from the equity on your home.
IRRRLs were created for veterans who want to refinance their loan to obtain a lower interest rate but not take out any cash. This refinance plan is also called the VA Streamline loan because of the speed and simplicity with which the loan is issued. The loan requires no “out-of-pocket” expenses and very little documentation. The no cost feature allows you to either roll the fees into the new loan, or have the lender pay them and give you a higher interest rate. However, unless you are going from a VA ARM to a fixed rate, the interest rate must be lower that what you are currently paying. In terms of documentation, as long as the borrowers are still the same, there is no need for another appraisal, credit check, or other type of paperwork.
If you’re interested in refinancing your home, whether to receive cash or lower your monthly payments, now is a good time to do so while interest rates are still low. With your VA loan, no matter what type of repayment plan you’re on, you will be able to obtain a new mortgage with relative ease and no closing costs. Keep in mind however, that any lender may make you an IRRRL, but the terms can vary greatly so it’s a good idea to shop around and visit as many lenders as you can before settling on a lender.