Differences Between Cash-Out and IRRRL Refinances
Millions of homeowners in the US refinance their mortgages every year. 2021 was one of the most historic years where more people than ever before took advantage of historically low interest rates and high house appreciation and refinanced their homes. The act of refinancing your mortgage is when you pay off your existing mortgage and replace it with a new loan. Investopedia defines refinancing simply as the process of revising and replacing the terms of an existing agreement.
There are many reasons why homeowners choose to refinance and the most popular of them are to take advantage of lower rates and therefore save money on monthly payments or to take cash out of the equity in your home. The Department of Veterans Affairs offers two powerful refinancing mortgage options including the Interest Rate Reduction Refinance Loan (IRRRL), also known as the VA Streamline Refinance and the VA Cash-Out Refinance. These are both powerful tools available exclusively to eligible military families and veterans who are looking to refinance their homes.
All about the IRRRL Refinance
The VA Streamline Refinance is a great option for homeowners who want to quickly refinance their loans to take advantage of lower interest rates available today that may not have been available at the time they purchased the home. Since this refinance option is designed for the veteran or service member to make a lesser mortgage payment than they were before due to a lower interest rate, it is considered streamlined due to the lower risk to the lender.
The process that comes along with the VA IRRRL Refinance is streamlined because there is less paperwork required. Homeowners can also reap the benefits of a lower interest rate, lower monthly payment, and a much smaller funding fee than traditional VA Home Loans.
How Cash-Out Refinances are different
While the VA IRRRL Refinance can only be used on existing VA Loans, the Cash-Out refinance can be taken advantage of by eligible veterans or military families who have conventional loans. This loan is more involved than an IRRRL since it mirrors the same steps and regulations as traditional VA Loans.
Unlike the IRRRL Refinance, the Cash-Out Refinance gives a veteran or active-duty service member the ability to tap into the equity in their home and pull-out cash to use at their disposal. The new loan will replace your existing mortgage like all other refinances and can represent up to 100% of the property’s value so you can get the cash you need when you need it.
Refinancing with a VA Loan
Regardless of if you are looking to lower your interest rate and/or lower your monthly payment or want to tap into your home’s equity to access cash and pay off debt, the VA has two strong refinancing options for you. They are both available exclusively to eligible veterans and active-duty service members and offer the same great benefits of the VA Loan like no PMI.
Through refinancing, you can renegotiate your mortgage terms to get a mortgage that is best suited to meet your current needs. If you’re interested in refinancing your current mortgage using a VA Loan, give our team at MHS Lending a call today!