18 June 2008
The Difference Between a VA IRRRL and a Cash Out Refinance
Posted by VA Loan Pro under: VA loans .
For those veterans who already have a mortgage and are looking to refinance with the VA there are options to consider. What are you refinancing for? Do you want a lower interest rate, or cash out of the equity you have in your home?The VA offers both Interest Rate Reduction Refinancing Loans (IRRRL) and Cash Out refinancing loans. If you are considering refinancing with the VA you should know the difference between these two types of loans. Here are some difference you should consider:
• An IRRRL is used for veterans who want to refinance an already existing VA loan in order to get a lower interest rate, and a Cash Out is used to pay off any debts or take money out of equity for whatever your needs.
• With an IRRRL the interest rate must be lower than the mortgage loan you have now unless you are refinancing into an ARM or for energy efficient home improvements, and with a Cash Out you can refinance into any interest rate.
• With a Cash Out refinance there is no monthly payment minimum or maximum requirements, and with an IRRRL the new payment needs to be lower than the old payment unless you are refinancing from an ARM to a fixed interest rate or are financing the cots of energy efficient home improvements.
• With an IRRRL you can only refinance the existing loan plus fees and the cost of energy efficient home improvements, but with a Cash Out refinance you can take out cash from your equity as long as it does not go over 90% of the appraised value of the home.
• With a Cash Out refinance you are guaranteed $36,000 to be insured by the VA on your new loan, and with an IRRRL you are guaranteed 25% of your loan amount.
• An IRRRL can have points on the loan but only 2 points are allowed to be financed into the new mortgage. With a Cash Out refinance you are allowed to have any amount of negotiated points in your loan as long as you stay below the 90% home value limit.
Both of these VA refinancing options are available to veterans who have their entitlement intact. If you have a current loan that is not guaranteed by the VA then you should consider refinancing with a VA loan in order to possibly get a better interest rate and more favorable terms. Be sure to consider the attributes and guidelines of each type of refinancing option before you choose which one to use.
