VA 15 Year Fixed Streamline Loan
VA 15-Year Fixed Streamline Loan (IRRRL)
A VA 15-Year Fixed Streamline Loan can be an attractive option for eligible veterans and military borrowers who want to build equity faster, pay their mortgage off sooner, and potentially reduce the amount of interest paid over the life of their loan.
When used as a VA Interest Rate Reduction Refinance Loan (IRRRL), the program can allow an eligible borrower with an existing VA-backed mortgage to refinance into a shorter fixed-rate term using VA's streamlined refinance process.
Faster Payoff and Potential Interest Savings
A 15-year mortgage repays principal much faster than a 30-year mortgage. Because the debt is outstanding for a shorter period, a 15-year loan can substantially reduce total interest expense when compared with carrying a similar loan for 30 years.
Shorter-term mortgages are also often offered at lower interest rates than otherwise comparable longer-term mortgages. However, this is not guaranteed. Available rates depend on market conditions, lender pricing, borrower qualifications, loan characteristics, and the rates available when you apply.
- Build equity faster: More of the loan balance is repaid over a shorter period.
- Potentially pay less total interest: A shorter repayment period can significantly reduce lifetime interest expense.
- Potentially lower interest rate: 15-year fixed loans may be priced below comparable 30-year loans, depending on current market and lender pricing.
- Fixed interest rate: The note rate remains fixed for the term of the loan, providing predictable principal-and-interest payments.
- No monthly private mortgage insurance: VA-backed loans do not require conventional private mortgage insurance (PMI).
- No VA prepayment penalty: You can make additional principal payments or pay the mortgage off early without a VA prepayment penalty.
VA Streamline Refinance (IRRRL)
The VA Interest Rate Reduction Refinance Loan is commonly called a VA Streamline Refinance or IRRRL.
It is specifically designed to refinance an existing VA-backed home loan. An IRRRL cannot be used to refinance a conventional, FHA, USDA, or other non-VA mortgage.
- Existing mortgage must be a VA-backed loan
- VA does not generally require a new appraisal
- VA does not generally require a full credit-underwriting package
- Allowable closing costs may be financed into the new loan
- An IRRRL can potentially be completed with little or no money paid out of pocket at closing
- The borrower generally needs to certify that he or she previously occupied the property
- The loan is subject to applicable VA seasoning, financial-benefit, recoupment, and lender requirements
- An IRRRL does not allow the borrower to receive cash from the loan proceeds
VA itself states that an IRRRL may be structured with no money out of pocket by including allowable costs in the new loan or, in some situations, through lender-paid costs associated with the interest rate selected.
This does not mean the refinance has no cost. Costs that are financed become part of the new loan balance, while lender-paid costs may be associated with a different interest rate.
No VA Minimum Credit Score
The Department of Veterans Affairs does not establish a minimum credit score for VA-guaranteed home loans.
However, individual mortgage lenders may establish their own credit-score requirements, underwriting standards, or additional requirements. Therefore, not having a VA-mandated minimum score does not mean that every applicant will qualify with every lender.
For a standard IRRRL, VA generally does not require a full credit underwriting package, although additional underwriting or documentation may be required based on the transaction, payment change, lender requirements, or other circumstances.
Refinancing Into a 15-Year Term
VA specifically recognizes that some lenders offer IRRRLs that reduce the term of an existing loan from 30 years to 15 years.
This can substantially reduce the time it takes to pay off the mortgage and can save interest over the life of the loan. However, reducing the loan term can also cause the monthly payment to increase significantly.
What If the New Payment Is Higher?
A 15-year refinance does not necessarily have to lower your monthly payment. A borrower may intentionally accept a higher monthly payment in exchange for a shorter repayment period and faster principal reduction.
If the new monthly payment for principal, interest, taxes, and insurance (PITI) increases by 20% or more compared with the existing payment, VA requires the lender to determine that the Veteran qualifies for the higher payment from an underwriting standpoint and to certify that determination.
Financial Benefit and Recoupment
VA IRRRL requirements are designed to help ensure that the refinance provides an appropriate financial benefit to the borrower.
The analysis can consider the old and new interest rates, monthly payments, loan term, closing costs, funding fee, and the amount of time required to recover applicable refinance costs.
A refinance into a substantially shorter term can work differently from a refinance designed primarily to lower the monthly payment, so VA rules account for circumstances where the borrower is intentionally increasing the payment to shorten the loan.
No Appraisal Generally Required
One of the major advantages of the VA IRRRL program is its streamlined structure. VA generally does not require a new appraisal or a full credit-underwriting package for an IRRRL.
This can simplify the refinance process compared with a traditional refinance. A lender may still request additional documentation or impose additional requirements depending on the circumstances of the loan.
Little or No Money Out of Pocket at Closing
Eligible closing costs associated with an IRRRL may generally be included in the new loan balance. Depending on the loan structure, another option may be a lender credit that covers some or all allowable closing costs in exchange for a different interest rate.
This is why an IRRRL may sometimes be completed without the borrower bringing a large amount of cash to closing.
It is important to compare both approaches. Financing costs increases the loan balance, while accepting lender-paid costs may affect the interest rate.
Timing of Your First New Mortgage Payment
Depending on the date your refinance closes and the payment schedule of the new mortgage, there can be a period between the payoff of your old mortgage and the due date of your first payment on the new mortgage.
This is sometimes informally described as "skipping a mortgage payment," but the payment is not actually forgiven or free. Mortgage interest accrues according to the terms of the new loan, and the timing of the first payment is part of the normal mortgage closing and payment cycle.
Your Loan Estimate and Closing Disclosure will show the applicable prepaid interest, closing costs, and payment information so you can see exactly how the timing works for your transaction.
What Happens to Your Existing Escrow Balance?
If your current mortgage has an escrow account for property taxes and homeowners insurance, paying off that mortgage generally results in the remaining escrow balance being returned to you by your existing mortgage servicer.
Under federal mortgage-servicing rules, a servicer generally must return the remaining escrow balance within 20 days after the mortgage is paid in full, excluding Saturdays, Sundays, and legal public holidays.
In certain circumstances, and with the borrower's agreement, the remaining escrow funds may instead be credited toward an escrow account for the new mortgage when permitted by federal rules.
If the new mortgage requires an escrow account, funds may need to be collected at closing to establish the new account for upcoming property-tax and homeowners-insurance obligations.
VA Help Center can explain the escrow amounts shown on your refinance disclosures and help you understand how your existing escrow refund and new escrow account relate to one another.
Occupancy and Properties You No Longer Live In
The occupancy requirement for a VA IRRRL is more flexible than the occupancy requirement for many other VA home loans.
For an IRRRL, VA generally requires the borrower to certify that he or she previously occupied the property. Current occupancy is not always required.
This means that an existing VA-backed mortgage on a home that later became a rental or investment property may, in some circumstances, still be eligible for an IRRRL if the borrower previously occupied the property and all other VA and lender requirements are satisfied.
VA No-Down-Payment Benefit
One of the best-known advantages of the VA home loan program is the possibility of purchasing an eligible home without a down payment when VA and lender requirements are satisfied and the purchase price does not exceed the property's appraised value.
This benefit applies primarily to VA purchase loans. It should not be confused with an IRRRL refinance. An IRRRL does not provide cash to the borrower and has its own rules governing the new loan amount and allowable financed costs.
15-Year VA Loans for Purchase and Refinance
A 15-year fixed-rate VA mortgage may be available for both qualifying home purchases and qualifying refinances.
The requirements depend on the transaction:
- VA Purchase Loan: Used to purchase an eligible property and may provide no-down-payment financing when applicable VA and lender requirements are satisfied.
- VA IRRRL: Used only to refinance an existing VA-backed mortgage and may offer streamlined documentation.
- VA Cash-Out Refinance: A different VA refinance program that can refinance other qualifying mortgage debt and may allow eligible borrowers to access home equity.
VA Energy Efficient Mortgage (EEM)
A VA Energy Efficient Mortgage may allow qualifying energy-efficiency improvements to be financed in connection with an eligible VA loan, including certain purchase and refinance transactions.
The amount of energy-efficiency improvements affects the documentation and underwriting requirements.
- Up to $3,000: The cost of qualifying improvements can generally be supported by documented costs.
- More than $3,000 and up to $6,000: The lender generally must determine that the increase in the mortgage payment does not exceed the likely reduction in monthly utility costs.
- More than $6,000: Additional analysis and qualification requirements apply, including consideration of anticipated energy savings, property value, and the borrower's ability to support the increased mortgage payment. Additional VA review may also be required.
Qualifying energy-efficiency improvements can include certain permanent improvements such as:
- Insulation
- Weather stripping and caulking
- Storm windows and doors
- Certain heating and cooling efficiency improvements
- Heat pumps
- Certain solar heating and cooling systems
- Other qualifying permanent energy-efficiency improvements
EEM availability and qualifying improvements are subject to applicable VA requirements and lender program availability.
15-Year Fixed vs. 30-Year Fixed
Both loan terms can be useful depending on the borrower's goals.
- 15-Year Fixed: Pays principal down more quickly, can substantially reduce lifetime interest expense, and may be available at a lower interest rate than a comparable longer-term loan. The monthly payment is generally higher.
- 30-Year Fixed: Spreads repayment over a longer period, which generally results in a lower monthly principal-and-interest payment when comparing the same loan amount and interest rate. Total interest paid over the full loan term can be higher.
Is a VA 15-Year Fixed IRRRL Right for You?
A 15-year refinance may be worth considering if you want to pay your mortgage off more quickly, build equity faster, and are comfortable with the required monthly payment.
A longer loan term may be more appropriate for borrowers who place greater importance on keeping their required monthly payment lower.
VA Help Center can help you compare the estimated interest rate, monthly payment, closing costs, loan balance, payoff period, and total interest associated with available VA refinance options so you can decide which structure fits your financial goals.
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Questions? Contact VA Help Center to learn more about available VA 15-year fixed refinance options and how they compare with other VA loan programs.
VA Help Center LLC is not affiliated with or endorsed by the U.S. Department of Veterans Affairs or any government agency.
Loan programs, rates, terms, closing costs, and eligibility are subject to applicable VA requirements, lender requirements, borrower qualification, and program availability.
Notice: Refinancing may increase or decrease your monthly payment, change the length of your repayment period, and affect the total finance charges paid over the life of the loan. A shorter loan term may result in a higher required monthly payment even when it reduces total interest expense. Review the terms and costs of the proposed loan compared with your existing mortgage before refinancing.