A VA IRRRL (pronounced "earl") is VA's rate reduction refinance. It replaces the VA loan you have with a new VA loan at a lower interest rate, or moves an adjustable-rate loan to a fixed rate. It only works on a loan that's already VA-backed, and it reuses the entitlement you used when you bought.
For a veteran buying with VA now, the IRRRL is the built-in way to lower the payment later if rates come down. FHA borrowers have a similar option in the FHA Streamline Refinance.
What VA requires
- An existing VA loan. The IRRRL refinances a VA-backed loan only. A non-VA loan moves to VA through a cash-out refinance instead.
- Occupancy, past or present. You certify that you live in the home now or used to.
- Seasoning. The later of two dates: when you've made six consecutive monthly payments on the current loan, or 210 days after its first payment was due.
- A real rate drop. Fixed to fixed, the new rate must be at least 0.5 percentage points lower. Fixed to adjustable, at least 2 points lower.
- The 36-month recoupment test. The fees and closing costs must be recovered through the lower monthly payment within 36 months. Taxes, escrow amounts and the VA funding fee aren't counted in this test.
- A second mortgage, if you have one, must stay second. Its holder has to agree to sit behind the new VA loan.
The funding fee is 0.5% for every IRRRL, first use or not, and it's waived for veterans receiving VA disability compensation.
A worked example on a $310,000 VA loan
Picture a veteran who bought with a $310,000 VA loan at 6.75%, a rate chosen only to show the math. Principal and interest is $2,010.65 a month. After 35 payments the balance is just under $300,000 (about $299,707), and the veteran can lock a 5.75% fixed rate. Rounding the balance to $300,000:
- Closing costs financed: $4,000, so the loan before the fee is $304,000
- Funding fee: 0.5% × $304,000 = $1,520
- New loan: $304,000 + $1,520 = $305,520
- New principal and interest at 5.75% on 30 years: $1,782.93
- Monthly savings: $2,010.65 − $1,782.93 = $227.72
- Recoupment: $4,000 ÷ $227.72 = 17.6 months
The rate drops a full point, beating the 0.5-point minimum, and the $4,000 of costs is recovered in about 18 months, well inside VA's 36. The $1,520 funding fee stays out of that math by law.
Getting ready for an IRRRL later
Make your payments on time, since a late payment in the past year can slow or stop the refinance. Keep your Certificate of Eligibility and closing papers from the purchase. Once you've passed the seasoning date, a quick rate check shows whether the drop clears both VA tests.
Price a VA purchase now with Price Check, which builds the funding fee into the payment. For a VA purchase today or an IRRRL on a loan you already have, call AAA Capital Funding at 888-601-8344.