Is the VA Streamline Refinance (VA IRRRL) worth it?

About the VA Streamline Refinance

Have mortgage rates dropped since you got your VA loan? The good news is that you may be able to refinance with less fuss if you qualify for a VA Streamline Refinance.

This loan has minimal paperwork, lower closing costs, and a simpler approval process. So many VA homeowners have an easier time refinancing into a lower rate and cheaper monthly payment.

Find out if you are eligible for a VA Streamline Refinance and how to decide whether this program is right for you.

In this article (Skip to...)

• VA Streamline benefits
• When it’s worth it
• When it’s not
• VA Streamline eligibility
• How to decide

Benefits of the VA Streamline Refinance

Also known as the VA Interest Rate Reduction Refinance Loan or ‘VA IRRRL’, the Streamline Refinance makes it easier to refinance into a lower interest rate and cheaper monthly mortgage payment.

This can help homeowners save thousands over the life of their VA home loans. And there’s less time and effort involved than with a traditional, non-VA refinance loan.

Stephen Thaggard, producing sales manager for Embrace Home Loans, explains that a VA Streamline Refinance is a stress-free method current VA loan borrowers can use to:

• Lower their mortgage interest rate and monthly payment
• Shorten their loan term (for example, from 30 years to 15 years)
• Or replace an existing VA adjustable-rate mortgage loan with a fixed-rate VA loan

“Qualified borrowers can enjoy the streamlined approach associated with a VA IRRRL, which may include no appraisal requirement, no income or banking documentation, and paying little to no out-of-pocket expense, especially if they choose to roll their closing costs into the loan,” he says.

It’s called a “Streamline Refinance” because the approval and documentation process is simplified and accelerated. That makes it a popular option for current and past military members and their surviving spouses who apply.

But keep in mind that a VA IRRRL isn’t the only way to refinance a VA loan. Alternatives include a VA cash-out refinance, a refi to an FHA loan, or a conventional rate-and-term or cash-out refi.

When is a VA Streamline Refinance worth it?

To determine if a VA IRRL is a good option, you’ll need to figure out how much you can lower your interest rate and how long it will take you to recoup your closing costs.

As with any refinance loan, closing costs typically equal 2-5% of your loan amount. And there’s the VA funding fee to consider, which costs 0.5% of the loan amount for a VA Streamline refi — although your mortgage lender may allow you to roll these all costs into your loan balance.

Calculating the ‘break-even point’

“The best way to calculate your payback period is to take the loan closing costs and divide that amount by the amount you’ll save in monthly mortgage payments. A trusted mortgage professional can help you figure this out,” suggests Mary Ann Fagley, senior loan officer and certified military home specialist with Mortgage Network.

For example:

• Say your VA IRRRL closing costs come out to $6,000
• And you’ll save $200 per month by refinancing
• It would take 30 months (or 2.5 years) to break even and see ‘real’ savings

Keep in mind that to qualify for the VA Streamline Refinance, you have to be able to recoup your loan costs and fees within 36 months of closing on your refinance loan.

“If you can do so within this timeframe, a Streamline refi is probably a good choice,” adds Fagley.

“However, you should also consider how long you plan to remain in the property. If it’s less than the time it takes to recoup your costs, you need to consider home values and home appreciation rates in your area,” she explains.

Other reasons to use the VA Streamline

Another good candidate for the VA Streamline refi is a current VA loan borrower with an adjustable-rate mortgage who wants to reset to a fixed-rate mortgage.

“This provides a streamlined approach with a stable fixed-rate option to replace the uncertainty of future adjusting rates and payments, which can relieve stress for some veteran homeowners,” Thaggard says.

You can further benefit if, in addition to lowering your interest rate, you want to shorten your loan’s term.

Say you are five years into a 30-year VA loan. If you refinance to a 15-year VA loan, you’ll shave 10 years off your total repayment schedule and likely save tens of thousands in interest over the life of your new loan.

When is a VA Streamline Refinance not worth it?

A VA Streamline Refinance is often not worth it if:

• The break-even point on your refinance is more than three years
• You plan on selling your home within the next three to four years
• Or if you think you’ll be transferred within 36 months and won’t keep the home

“Or, if your existing VA loan is getting close to being paid off, such as if you have 10 or fewer years left, it’s probably not worth touching it and restarting the clock,” advises Julie Aragon, CEO/founder of the Aragon Lending Team.

Also keep in mind that if you plan to roll the closing costs and funding fee into your new loan, your future monthly payments may not be as low as you had hoped. And you’ll pay more interest over the loan’s term than if you had paid the closing costs upfront. This can negate some of the benefits of refinancing.

Alternative refinance options

A VA Streamline Refinance may not be worth it if you’ll pay more in closing costs than you’ll save. And it won’t help you cash out your home equity.

If you want to refinance with cash back — to pay for home improvements, for example — you’ll need to use the VA cash-out refinance or another cash-out loan program.

“Refinancing to a conventional mortgage loan would be a great alternative to a VA Streamline refi if you don’t qualify or the disadvantages outweigh the advantages,” recommends Daniel Litvin, a mortgage broker with Advantage Lending Corp.

“This is especially true of someone not exempt from the VA funding fee and who has a loan-to-value ratio of 80% or less where private mortgage insurance wouldn’t be required on the conventional refinance.”

Finally, you likely won’t want to use the VA Streamline refi if your home is nearly paid off, because refinancing starts your mortgage over.

Taking out a new mortgage is a big financial decision. So be sure to explore all your refinance options with a loan officer or financial advisor before going ahead. The benefits can be huge, but you need to make sure a refi is really the best decision for you.

VA Streamline Refinance eligibility

To qualify for the VA Streamline Refinance, homeowners have to meet several criteria set by the Department of Veterans Affairs.

For starters, you must be VA-eligible, meaning you’re an active-duty service member, veteran, member of the Reserves or National Guard, or an eligible surviving spouse. And your existing mortgage must be a VA loan.

You won’t need to request a Certificate of Eligibility (COE), because a lender already confirmed your VA eligibility when you got your first VA mortgage.

Other requirements for the IRRRL program include:

• The refinance must involve lowering your current interest rate by at least 0.50%, unless the current VA mortgage is an adjustable-rate loan (ARM)
• You must not be more than 30 days past due on your any payment over the past 12 months
• You must pay a VA funding fee of 0.5 percent, regardless of prior usage or service history, unless you are exempt
• You must be able to recoup your loan costs and fees within 36 months
• Your VA IRRRL lender may require a credit report or credit score check
• You are not allowed to take cash out at closing
• You must currently occupy or have previously occupied the property as your primary residence. “That means refinancing a second home or investment home may be allowed,” Thaggard says
• The new loan term cannot exceed the original loan term by greater than 10 years. “For example, if the original term was 15 years, the new term cannot exceed 25 years,” notes Litvin
• The refinance loan cannot close until 210 days have passed from the date of your current VA loan’s first payment (for loans closed Aug. 1, 2019, and thereafter)
• At least six months of payments must have been made on your current VA loan
• You must not be involved in any active forbearance or ongoing bankruptcy

“Borrowers need to apply for a VA Streamline Refinance through a bank, credit union, or mortgage company offering this kind of loan — not the VA itself,” notes Aragon.

Provided you meet the VA’s eligibility requirements, completing a VA Streamline refi should be relatively quick and easy. Because lenders don’t have to check your credit and employment or order a new home appraisal, these loans often close faster than other refinances — sometimes in a matter of weeks.

How to decide for yourself if the VA IRRRL is worth it

If you are eligible for this type of loan and you stand to save money, the VA Streamline Refinance makes a lot of sense.

“The VA requires that the loan terms provide an immediate financial benefit for the borrower. Also, there is no limit as to how many times a qualified borrower can use the VA IRRRL program, so if rates move even lower in the coming years, you can always use this program again,” Fagley explains.

Aragon agrees. “If the cost savings pencil out, it’s a great option for those looking to get better terms and take advantage of a quick and relatively less involved mortgage process.”