The IRRRL program offers a variety of benefits to veterans on top of the benefits they already receive with low interest rates, flexible guidelines, and low closing costs. As with any mortgage, however, there are a number of IRRRL Program pros and cons that you should be aware of before you decide to refinance. Your mortgage is probably the largest investment in your life, so understanding what you are getting yourself into and looking at both sides of the equation can help you to make an informed decision.
Pros of the IRRRL Program
First, let’s take a look at the pros of this program, as there are many and they are easy to spot. The very first benefit is obviously the ease of the program. What program could be any easier than not needing any of the following:
- Income docs
- Credit score
Honestly, there is no other program that makes it any easier to refinance. All that you need is a solid housing payment history and there needs to be a benefit for the loan, which typically means a lower payment. That’s all that is required, which makes almost any veteran eligible for the program unless they already have a very low interest rate and would not save any money by refinancing.
Another great benefit of this program is that you can include all of your closing costs in the loan. This means that you do not need to bring any money out of your own pocket to the closing. This makes refinancing affordable for everyone. Even if your home’s value decreased or you are right at that 100% LTV still, you can include your closing costs because an appraisal is not required for the loan to get approved.
Last, but not least, you are able to shop around with various lenders for the IRRRL program. You are not restricted to using your current lender and you do not have to use the first lender you apply with and receive an approval. This gives you the opportunity to save even more money by shopping around. Every lender has different requirements, interest rates, and costs, which makes it worth your time to shop around and see what is available to you in order to maximize your savings. So carefully consider all the IRRRL Pros and Cons before deciding one way or the other.
Cons of the IRRRL Program
As with any refinance program, there are cons of the IRRRL program that you should be aware of before you decide to refinance.
The VA IRRRL program does charge closing fees on every loan. If there are not any fees, then they are being rolled into the interest rate, which means the lender charges you a slightly higher interest rate in exchange for paying for your closing costs for you. Either way, you are paying them. You should determine if the closing costs make it worthwhile for you to refinance. If you do not plan on staying in the home for the long-term, it might not be worth it because it would take too long to make up for the costs you pay to refinance with the savings you make on the interest. Really evaluating the costs to refinance is crucial to your success with refinancing.
As with any refinance, the VA IRRRL program adds years on your term. Let’s say, for example, that you held your current VA loan for 5 years. You decide that rates are now low enough for you to refinance. You will save money every month, but you will also be adding those five years back onto the term of your loan. If you had a 30-year mortgage, you just went right back to paying your loan off in 30 years rather than 25 years. If you are able to shorten the term and still reap the benefits of the refinance, this is usually suggested so that you do not extend your term again.
One of the largest downfalls that most veterans see with the IRRRL program is that you cannot take any cash out with the program – there are no exceptions to this rule. You cannot have any money exchange hands, nor can you pay off a second lien on the home with the proceeds of the loan. The whole purpose of the loan program is to make your payment more affordable, which means lowering the interest rate and typically the monthly payment. The only exception to the lower payment rule is if you refinance from an adjustable rate mortgage into a fixed rate, in which case, your payment might increase slightly because of the higher, yet more stable interest rate.
IRRRL Pros and Cons Need Weighing
Every veteran needs to weigh the IRRRL pros and cons before deciding to refinance. You might decide that you still want to refinance but will change the term of the loan, as in the above example. You might also find that weighing the pros and cons helps you decide to refinance because you can change your adjustable rate into a fixed rate which is more predictable, preventing you from suffering a foreclosure in the future. The exact circumstances surrounding your loan and home ownership plans is what will help you determine what is right for you.
Don’t compare your situation to anyone else; figure out what works for you and then find a lender that is willing to offer those benefits to you so that you can refinance and make your mortgage more affordable!