Updated January 2018
The VA streamline refinance loan, also known as the IRRRL, or Interest Rate Reduction Refinance Loan, is a great way for veterans to lower their interest rates and monthly payments by refinancing their VA mortgage. Today’s low interest rates make the IRRRL very attractive to homeowners who are veterans.
Because the IRRRL requires no out of pocket expenses for the borrower, all costs can be rolled into the new loan. One cost associated with the IRRRL is the VA refinance funding fee. It’s important to understand the specifics of the funding fee.
The VA refinance funding fee is a fee charged by the VA at the time of the loan. It is the only fee required by the VA, so beware if lenders try to tell you that the VA charges closing costs above and beyond the VA refinance funding fee. It is not true.
The VA Funding Fee is charged by the VA for every home loan either purchase or refinance. This is used by the department to cover for the losses on the loans that go into default.
The fees vary from borrower to borrower depending on several factors including the nature of the borrower’s service or if it is his or her first time getting a VA loan. Borrowers with service-related disabilities are exempt from the funding fee charges.
Below is a chart of the VA Funding Fees:
| Regular Military Personnel | ||
| Down payment | Funding Fee (1st use) | Funding Fee (subsequent use) |
| None | 2.15 percent | 3.3 percent |
| 5-10 percent | 1.5 percent | 1.5 percent |
| 10 percent and up | 1.25 percent | 1.25 percent |
| Reserve & National Guard Personnel | ||
| Down payment | Funding Fee (1st use) | Funding Fee (subsequent use) |
| None | 2.4 percent | 3.3 percent |
| 5-10 percent | 1.75 percent | 1.75 percent |
| 10 percent and up | 1.5 percent | 1.5 percent |
Cash-Out Refinance Loans:
| Funding Fee for Cash-Out Refinancing | ||
| Type of Veteran | Funding Fee (1st use) | Funding Fee (2nd use) |
| Regular Military | 2.15 percent | 3.3 percent |
| Reserves/National Guard | 2.4 percent | 3.3 percent |
It is worth mentioning other fees that may be rolled into your loan. Lending institutions charge closing costs, and it is beneficial to shop around for a lender who will give you the best deal.
If you refinance frequently and roll your funding fee and closing costs into your loan, you may find yourself in a situation in which you owe more than your house is worth. Your payments will also not be reduced as much as you might like. Paying the VA refinance funding fee plus any closing costs up front will maximize the advantage of the VA streamline loan, which is lowering your interest rates and payments.
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