What Is an Interest Rate Reduction Refinance Loan (IRRRL)?

Definition & Exaples of an IRRRL

Mother watching over two daughters hugging their dad, who wears military fatigues in the front yard of their house

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Interest rate reduction refinance loans (IRRRLs) provide certain military officers and family members with an opportunity to refinance their existing Veteran's Administration (VA) loans. This streamlined refinancing program can replace a current mortgage with a new lower-interest mortgage or convert an adjustable-rate mortgage to a fixed-rate mortgage.

If you’re a homeowning veteran, active-duty service or qualifying reserve member, or a surviving military spouse looking to lower your mortgage loan’s interest rate, you may qualify for an IRRRL. Learn how these loans work and whether you qualify.

What Is an Interest Rate Reduction Refinance Loan?

Only available to homeowners with existing VA loans, an IRRRL allows qualifying military officers to refinance their homes to a better interest rate and loan terms. The Veterans’ Disability Compensation and Housing Benefits Amendments of 1980 originally introduced the program. Qualifying military officers include any of the following, as long as they were not dishonorably discharged:

  • Veterans
  • Members of the Reserve and National Guard (called to active duty or after six years of service)
  • Service members in active duty
  • Some surviving spouses

It can be used for single-family homes, condominiums, and manufactured homes, and the applicant must certify that they, their spouse, or dependant child live in the property.

  • Alternative name: Streamline refinance
  • Acronym: IRRRL

Be sure to get quotes from at least a few lenders, as rates and terms can differ from one to the next and can help you negotiate interest rate offers, which may lower your interest rate even further.

How Does an IRRRL Work?

An IRRRL works similarly to a traditional refinance loan in that it replaces your existing mortgage with a new one. IRRRL loans can be fixed, adjustable-rate, or hybrid adjustable-rate, where interest rates are concerned.

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

  • In many cases, your IRRRL interest rate and total loan amount (plus financing fees) must be equal to or less than the original loan.
  • Credit information or underwriting are rarely required by the VA (although lenders may have their own requirements).
  • No cash-out options are available unless you're planning to use the funds for energy-efficiency improvements.
  • There are no income limits and no maximum loan-to-value ratio.
  • No appraisal is required.

Like other VA mortgage loans, IRRRLs are only available through VA-approved lenders. There is also a VA Funding Fee, which is 0.5% for IRRRL loans.

The IRRRL's principal and interest payment must be lower than the original loan, unless the IRRRL is refinancing an ARM, the refinance term is shorter than the original loan (30 years to 15 years, for example), or the IRRRL includes energy-efficiency improvements.

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.

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 and any other information the lender requires. 

You'll also need to decide if you will pay any closing costs upfront, including discount points and the funding fee, 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).

Pros and Cons of IRRRL Loans

  • Closing costs and funding fee can be rolled in

  • No requirements for credit information, underwriting, income, or LTV in most cases

  • Designed to reduce your interest rate and monthly payment

  • Only available if you already have a VA loan

  • Only available through certain lenders

  • Limited cash-out options available, overall

Pros Explained

  • Roll in costs: IRRRL refinancing allows you to roll any fees into the new loan and avoid out-of-pocket costs.
  • Relatively limited requirements: In most cases, you won't need a credit check and there are no specific limits on the loan-to-value ratio.
  • Reduce your rate and payment: You come away with a lower monthly payment and pay less interest over the life of your loan.

Cons Explained

  • You must already have a VA loan: This program is not available to many people.
  • Only available through certain approved lenders: Not all lenders offer VA loans.
  • Limited cash-out options: This option is only available, in most cases, if you're planning energy efficiency upgrades. If you want to refinance for a larger loan that includes funds to make home improvements or cover other expenses, you might need to use a VA-backed cash-out refinance loan instead.

Key Takeaways

  • An interest rate reduction refinance loan (IRRRL) allows certain military service members and their spouses to refinance at a lower rate or convert from an ARM to a fixed-rate mortgage.
  • IRRRL loans have no LTV or income limits and you can usually roll in costs into the refinance.
  • These loans are only available through VA lenders to people already on a VA loan.