VA Streamline vs. Cash Out Refinance
Posted on: March 21, 2018
Even with mortgage rates increasing, thousands of VA members can likely save money on their monthly payments by reducing their mortgage rates. Yes, even current mortgage rates are below what many homeowners are locked into on their mortgage.
The best way for VA members to reduce the interest rate on their loan is through a VA refinance. The VA offers two specific types of refinancing: the VA streamline (or IRRRL) and the VA cash-out refinance.
Both of these are among the best refinance options available, but depending on the homeowner’s needs, one of these refinances is going to be a better option than the other.
VA streamline refinance
The VA streamline refinance is also known as the interest rate reduction refinance loan (IRRRL). That name just about says what it is: a loan that allows you to reduce your interest rate.
One of the best aspects of the IRRRL is that it’s perhaps the easiest refinance program to use. Any VA member that currently has a VA loan is eligible, and they’re able to bypass most of the requirements that come with a refinance.
With the IRRRL, you’ll be able to skip most of the documentation that’s usually required with a refinance. You won’t have to supply your income information, money supply or credit score, and you can skip the appraisal (which saves a lot of time).
To determine if this is the right program for you, consider some of the pros and cons of a streamline refinance:
- Easy to use
- Lower your interest rate
- Borrow up to $6,000 in cash for energy-efficiency improvements
- A relatively quick refinance
- Closing costs can be rolled into the loan, meaning no upfront fees necessary
- No maximum loan limit
- Must already have a VA loan
- New monthly payment must be lower than previous monthly payment (this affects home buyers with adjustable rate mortgages)
VA cash-out refinancing
The second refinancing option for VA eligible members is the VA cash-out refinance. Unlike the IRRRL, this refinance option allows you to take cash out at the closing for whatever you want – whether it be a home improvement or a well-needed vacation.
The money that you get from a cash-out refi comes from your home equity. This means that any money you’ve put in your house can be taken back out. Also, you can use the VA cash-out to borrow up to 100% of your home’s value.
Not only is this mortgage option great for getting cash in hand, but it also allows the homeowner to cancel any mortgage insurance they have from an FHA or conventional mortgage. This is because the VA guarantees all their loans, so no insurance costs are added.
However, anyone who uses a VA cash-out refinance will be forced to submit documentation to make sure that their debt-to-income ratio is less than 41%. An appraisal will also be required to check the value of the home.
- Refinance a VA or non-VA loan
- Borrow cash from home equity
- Can borrow up to 100% LTV
- Remove mortgage insurance from a non-VA loan
- Can only borrow
- Slower process than an IRRRL
- More required paperwork than IRRRL
- A funding fee of 2.15% for first-time users and 3.3% for repeat users is required at the closing
Is it time to refinance?
Mortgage rates are on the rise, and they could end up staying at higher levels. However, many current homeowners have mortgage rates that are above current levels.
By refinancing through either of these programs, VA members may be able to save money on their monthly payments, even if they have a non-VA loan.
What’s more, VA members aren’t required to use their current lender when refinancing. It’s actually encouraged that homeowners shop around to find the best rates available.