Veterans have the option to refinance their current VA loan with little verification required. As long as your VA loan is current and there is a benefit for refinancing, you may qualify. But, what if you want to use the benefit more than one time? Are you able to do so?
The generic answer is ‘yes,’ you can use the benefit as many times as you want. The trickier answer, however, is that it depends on the circumstances. The VA is very strict regarding the requirement regarding the need for a benefit to the refinance.
How Much Must the Refinance Save You?
Generally, borrowers benefit from a refinance by securing a lower interest rate. This gives the borrower a lower monthly payment, which means they save money. There’s no denying this benefit. The VA does not have a specific amount a borrower must save in order to qualify.
Now, what if a borrower refinances and saves money, but then wants to do it again? The likelihood of this happening may be very slim. While technically you could use the program as many times as you want, is there really going to be a benefit more than one time? The only time this might be the case is if there is a drastic drop in interest rates.
Here’s an example. Let’s say that you take out your original loan during a time that interest rates are rather high and you refinance right away when rates drop. You save a little bit of money, so the VA IRRRL gets approved. Now, two years down the road, rates drop again, so you decide to refinance. As long as you save money, the loan will get approved, assuming you have a timely mortgage payment history. In reality, though, the chance of rates dropping that much in a short amount of time is unlikely.
What About Other Benefits?
Luckily, there are other benefits a refinance can offer in order for you to take advantage of the VA IRRRL multiple times. While most borrowers benefit from a lower payment, some benefit from a new type of loan. For example, if you have an adjustable rate loan now, but want a fixed rate, it’s considered a benefit. The fixed rate loan is less risky for you and the lender than the ARM, which is why it’s a benefit.
It doesn’t matter if the adjustable rate loan adjusted yet or if it won’t adjust for a while. Just the fact that you are able to secure a more predictable program than the ARM provides is benefit enough. In fact, lenders don’t even have to make sure you hit a specific threshold of savings. Where they do have to watch, though, is how much your payment increases.
ARM rates are often much lower when you first take out the loan. If your rate has not adjusted yet, you may have a lower payment than a fixed rate loan would provide. This means your payment may increase after the refinance rather than decrease. As long as the payment does not increase more than 20%, though, the lender can approve the VA IRRRL.
The ARM to fixed rate isn’t the only program change the VA IRRRL can offer, though. You can also use it to change the term of your loan. Many borrowers use it to take a shorter term that helps them pay off their loan faster. Again, as long as the payment doesn’t increase more than 20%, it’s eligible for the VA IRRRL program.
Overall, you can use the VA IRRRL program as often or as much as you want as long as there is a benefit. Eventually, you will get to the point that there is no point to the refinance. Instead, it will cost you more in closing costs and funding fees than it would benefit you to refinance your loan. Once you have the perfect loan, it’s best to leave it as is and focus on paying the balance down to help you own your home faster.