What Is an IRRRL, Interest Rate Reduction Refinance Loan?

Want a lower mortgage rate? If you have a VA loan, an IRRRL could help

Mother watching over two daughters hugging their dad in military fatigues uniform in the front yard of their house.
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If you’re a homeowning veteran, active-duty service or qualifying reserve member, or surviving military spouse looking to lower your mortgage loan’s interest rate, you may qualify for an interest rate reduction refinance loan (IRRRL). Only available to homeowners with existing Veterans Administration (VA) loans, this streamlined refinancing program lets you replace your current mortgage with a new mortgage with a lower rate—and no credit check or upfront closing costs are required.

How Does an IRRRL Work?

An interest rate reduction refinance loan works similarly to a traditional refinance loan in that it replaces your existing mortgage with a new one. 

However, there are a few things that differ with an IRRRL, including:

  • No appraisal required
  • No credit check or underwriting involved (unless the individual lender requires it)
  • The ability to roll all your closing costs and funding fees into your loan balance
  • No cash-out options available
  • The ability to finance up to 2 discount points to lower your rate further

Like other VA mortgage loans, IRRRLs are only available through VA-approved lenders.

The VA encourages borrowers to shop around for their IRRRL, as rates and terms can vary greatly with each lender.

Eligibility for IRRRLs

The first requirement for an IRRRL is that you have a current VA mortgage loan. IRRRLs are only available on VA-to-VA refinances, so if you don’t currently have a VA mortgage, you won’t be eligible, no matter what your service record may be.

As with all VA home loans, you’ll also need a valid Certificate of Eligibility (COE). You can obtain this through the VA/DoD eBenefits portal, or use your previous COE, if still available. Your lender can also use the VA’s email confirmation process to verify your previous COE. You also will need to certify that you currently live in or have occupied the property.

There are no income limits, LTV limits, or credit requirements for an IRRRL mortgage. Homeownership counseling and mortgage insurance are also not required.

Though there are no hard-and-fast limits to VA loans or IRRRLs, most VA lenders will only lend up to four times a veteran or service member’s current entitlement. Your new loan also cannot exceed the balance of your existing loan (plus any financed fees and closing costs).

Pros and Cons of IRRRLs

There are countless benefits to IRRRLs, as well as to VA loans in general. They come with very few qualifying requirements and upfront costs as well. You can also finance up to 2 discount points to lower your interest rate even more. 

The downside to IRRRLs is that they’re only available to current VA loan holders and through certain approved lenders. There are also no cash-out options available, so you can’t refinance for a larger loan and use the proceeds to make home improvements or cover other expenses, as you can with other refinance options.

Pros

  • No down payment required

  • Closing costs and funding fee can be rolled in

  • No credit check required

  • No income or LTV limits

  • Reduces your interest rate and monthly payment

  • Can finance up to 2 discount points 

Cons

  • Only available if you already have a VA loan

  • Only available through certain lenders

  • No cash-out options available

Applying for an IRRRL

To apply for an IRRRL, you’ll need to first find a VA lender that offers one. Then, you’ll fill out the application, and provide your COE. 

You will also need to decide if you will pay your closing costs and funding fee upfront, or if you’ll include them as part of your loan balance. In some cases, you may be exempt from this funding fee altogether (if you’re receiving service-connected disability compensation, for example).

The Bottom Line

Because the IRRRL process does not require an appraisal, credit check, underwriting, or upfront closing costs, these loans are often a quick and hassle-free route to refinancing—as long as you’re eligible. Be sure to get quotes from at least a few lenders, as rates and terms can differ from one to the next. 

Also keep in mind that you can negotiate with your lender on interest rates, and that up to 2 discount points can be financed as part of your loan. This can help lower your interest rate even further.

Article Sources

  1. Benefits.gov. "Interest Rate Reduction Refinance Loan." Accessed March 9, 2020.