Refinancing Your VA Loan

The short version

If you already have a VA loan, refinancing can lower your rate, lock in a fixed payment, or help you pay the home off faster. The most common path is the IRRRL, a streamlined refinance with limited paperwork. The catch is timing. Refinancing has costs, and you only come out ahead if you stay in the home long enough to recoup them. Here is when it makes sense and when it does not.

The IRRRL, also called the VA Streamline

The Interest Rate Reduction Refinance Loan lets you refinance an existing VA loan into a lower rate, or switch from an adjustable rate to a fixed rate. It is built to be simple. The paperwork is limited, and you can usually roll the lender fees into the loan instead of paying them out of pocket.

• Lower your rate. Replace your current VA loan with a new one at a lower interest rate.
• Drop the adjustable rate. Move from an adjustable rate to a fixed rate so your payment stops moving.
• Roll in the costs. Lender fees can be folded into the loan balance, so you do not need cash at closing.

Source: VA.gov

When refinancing is worth it

Because you are usually rolling the fees into the loan, you want a meaningful drop in rate so you actually recoup that cost over time. A common benchmark is a drop of about 1 percentage point or more.

Rule of thumb: refinancing usually makes sense when rates fall by roughly 1 percentage point or more, since a smaller drop may not cover the fees rolled into the loan.

A pay raise can also change the math. If your household income jumps, for example when you leave the service for higher civilian pay or a spouse adds income, refinancing can help you restructure and pay the home off faster.

When to skip it

Refinancing is not free, so a few situations make it a poor move.

• You plan to move soon. If you expect to sell or PCS in the near term, you will not stay long enough to recoup the costs.
• You are near the end of the loan. Late in the term, most of your payment already goes to principal, so refinancing rarely helps.
• Tapping equity for a want. A cash-out refinance lets you pull equity from the home, but treat it as a last resort for a true need, done intentionally, not for a purchase you could skip.

Do this now

1. Check today's rate. Compare current VA refinance rates to the rate on your existing loan and confirm the gap is close to 1 percentage point or more.
2. Confirm your timeline. If a move, sale, or PCS is likely within the next couple of years, hold off until you know you will stay.
3. Ask about rolling in fees. Have your lender show the new balance and payment with the IRRRL fees folded in, then confirm how long it takes to break even.
4. Keep cash-out for real needs. If you are considering a cash-out refinance, decide on the specific need first and borrow only what that requires.

FAQ

What is an IRRRL?

It is the VA Streamline refinance. It replaces an existing VA loan with a new VA loan at a lower rate, or switches an adjustable rate to a fixed rate, with limited paperwork.

How much should rates drop before I refinance?

A common benchmark is about 1 percentage point or more. Because lender fees are usually rolled into the loan, you want a large enough drop to recoup that cost over the time you stay in the home.

Can I take cash out of my home with a VA refinance?

Yes, a cash-out refinance lets you tap your equity. Treat it as a last resort for a genuine need, done on purpose, rather than a way to fund things you could otherwise skip.

Sources & links

• VA, Interest Rate Reduction Refinance Loan (IRRRL): va.gov
• CFPB, Refinancing your mortgage: consumerfinance.gov