VA 3/1 Hybrid Streamline Loan

VA 3/1 Hybrid Streamline Loan (IRRRL)

A VA 3/1 Hybrid Adjustable-Rate Mortgage (ARM) combines an initial fixed-rate period with an adjustable interest rate later in the loan term. When available as part of a qualifying VA Interest Rate Reduction Refinance Loan (IRRRL), it may provide another refinancing option for eligible borrowers with an existing VA-backed home loan.

How a VA 3/1 Hybrid ARM Works

With a VA 3/1 Hybrid ARM, the interest rate is fixed during the initial three-year period. After that period, the interest rate may adjust once each year according to the applicable index, margin, adjustment caps, and other terms contained in the loan documents.

  • Fixed interest rate during the initial three-year period
  • Annual interest-rate adjustments after the fixed period
  • The rate may increase, decrease, or remain unchanged after the initial fixed period
  • No monthly private mortgage insurance (PMI) on a VA-backed loan

Interest-Rate Adjustment Limits

VA adjustable-rate mortgages are subject to limits on how much the interest rate may change.

  • The first interest-rate adjustment may occur no sooner than 36 months from the date of the borrower's first mortgage payment
  • After the initial fixed period, adjustments occur annually
  • No single adjustment may change the interest rate by more than 1 percentage point in either direction
  • Over the life of the loan, the interest rate may not change by more than 5 percentage points in either direction from the initial contract interest rate
  • The actual adjusted rate depends on the applicable index, margin, caps, and other terms contained in your loan documents

Because an adjustable-rate mortgage can result in a higher monthly payment after the fixed-rate period ends, borrowers should review the ARM disclosures and understand the maximum potential payment changes before choosing this type of loan.

VA Streamline Refinance (IRRRL)

The VA Interest Rate Reduction Refinance Loan, commonly called a VA Streamline or IRRRL, is designed for eligible borrowers who are refinancing an existing VA-backed home loan.

  • Must refinance an existing VA-backed home loan
  • A VA appraisal is generally not required, although an appraisal may be necessary in certain circumstances
  • VA generally does not require a full credit-underwriting package for an IRRRL, although lender requirements and certain exceptions may apply
  • Allowable closing costs may generally be included in the new loan, subject to applicable VA requirements
  • The borrower generally certifies that they currently occupy or previously occupied the property
  • An IRRRL is not a cash-out refinance and does not provide cash proceeds to the borrower

IRRRL Benefit Requirements

A VA IRRRL must satisfy applicable VA refinance requirements, including requirements intended to provide the borrower with a financial benefit from the refinance.

Whether a particular refinance qualifies depends on factors such as the existing loan, the new loan terms, interest rate, payment, fees, closing costs, loan seasoning, recoupment requirements, and other applicable VA guidelines.

What If You No Longer Live in the Property?

The occupancy requirement for an IRRRL is different from many other VA loans. An eligible borrower may generally qualify by certifying that they currently occupy or previously occupied the property as their home.

This means that, in some circumstances, an existing VA-backed loan on a property that is no longer the borrower's current residence may still qualify for an IRRRL, subject to VA and lender requirements.

VA Energy Efficient Mortgage (EEM)

An eligible VA Energy Efficient Mortgage option may allow certain energy-efficiency improvements to be included with a VA purchase loan or IRRRL. An EEM is used in conjunction with an eligible VA-backed loan rather than as a separate mortgage program.

VA guidelines provide specific requirements for qualifying energy-efficiency improvements and how their costs are evaluated. Improvements of up to $6,000 may be handled under specific VA EEM guidelines, while larger amounts may require additional analysis and qualification.

  • Certain insulation improvements
  • Weather stripping and caulking
  • Certain heating and cooling efficiency improvements
  • Heat pumps
  • Certain solar heating and cooling systems
  • Other qualifying energy-efficiency improvements

Potential Advantages of a 3/1 VA Hybrid ARM

  • Three Years of Rate Stability: The interest rate remains fixed during the initial three-year period.
  • Adjustment Limits: After the fixed period, limits apply to how much the interest rate can change at each annual adjustment and over the life of the loan.
  • Potential for Future Rate Decreases: Depending on the applicable index and loan terms, the interest rate could decrease after the fixed period as well as increase.
  • VA Loan Benefits: VA-backed loans do not require monthly private mortgage insurance.
  • Refinance Flexibility: A qualifying adjustable-rate loan may be available in connection with an IRRRL, subject to VA requirements and lender program availability.

3/1 VA ARM Details

  • Initial Period: Interest rate fixed for the first three years
  • Adjustment Period: Annual adjustments after the initial three-year period
  • Adjustment Cap: No single adjustment may change the interest rate by more than 1 percentage point in either direction
  • Lifetime Cap: The interest rate may not change by more than 5 percentage points in either direction from the initial contract interest rate
  • Index: Adjustments are based on the applicable VA ARM index together with the margin and terms specified in the loan documents

Important Considerations

A 3/1 Hybrid ARM is not appropriate for every borrower. After the initial three-year fixed period, both the interest rate and monthly principal-and-interest payment may increase.

Before choosing an adjustable-rate mortgage, review the loan's index, margin, adjustment dates, annual adjustment limits, lifetime cap, and maximum potential payment. Required ARM disclosures provide important information about how future interest-rate and payment adjustments work.

Is a VA 3/1 Hybrid IRRRL Right for You?

The appropriate loan structure depends on your existing VA loan, current interest rate, expected time in the property, financial goals, available loan terms, and your comfort with the possibility of future rate and payment adjustments.

VA Help Center can explain available VA refinance options and help you compare fixed-rate and adjustable-rate VA loan options when those programs are available.

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Loan programs, rates, terms, and eligibility are subject to applicable VA requirements and lender approval.

Notice: An adjustable-rate mortgage may result in higher interest rates and monthly payments after the initial fixed-rate period. Total finance charges may also be higher over the life of the loan.