Quick answer: A VA Interest Rate Reduction Refinance Loan (IRRRL) replaces an existing VA mortgage, generally to lower its interest rate or make payments more predictable. A VA cash-out refinance can replace a VA or non-VA mortgage and may allow you to borrow against your home equity. Each goal calls for a different approach to refinancing.
The better option depends on your current loan, how much you want to borrow, and whether the new terms justify the refinancing costs.
Explore your VA refinance options with GO Mortgage.VA IRRRL vs. VA cash-out refinance: Key differences
| Feature | VA IRRRL (streamline) | VA cash-out refinance |
| Existing mortgage | Must be VA-backed | Can be VA or non-VA |
| Main purpose | Improve terms of an existing VA loan | Access equity or replace another mortgage with VA financing |
| Cash from home equity | Not available | May be available |
| Appraisal | Generally not required | Required |
| Credit and income review | Usually streamlined; lender requirements apply | Full underwriting required |
| Occupancy | Current or previous qualifying occupancy | Must meet VA primary-residence occupancy rules |
| Standard funding fee | 0.5%, unless exempt | 2.15% for first use or 3.3% for subsequent use, unless exempt |
| Seasoning | VA minimum payment-history and timing rules apply | Rules apply when replacing a VA loan |
An IRRRL is principally a way to change an existing VA mortgage. A cash-out refinance offers more options but usually requires more documentation and a property appraisal.
When does a VA IRRRL make more sense?
An Interest Rate Reduction Refinance Loan may be appropriate when you already have a VA mortgage and want to improve its terms without withdrawing equity.
It can help you:
- Reduce your interest rate. For a fixed-rate VA loan refinanced into another fixed-rate loan, the new rate generally must be at least 0.5 percentage points lower
- Make payments more predictable. Refinancing a VA adjustable-rate mortgage (ARM) into a fixed-rate loan may provide payment stability, even if the new rate or payment increases
- Avoid a standard cash-out appraisal. VA generally doesn’t require a new appraisal or full credit underwriting for an IRRRL, although your lender may require additional review
An IRRRL can’t be used to withdraw cash from your home’s equity. It may still increase your mortgage balance if eligible closing costs or the VA funding fee are financed.
When does a VA cash-out refinance make more sense?
A VA cash-out refinance may be an option when you want to use available equity for renovations, education, or other financial needs. It can also replace an existing conventional or FHA mortgage with VA financing.
You don’t have to receive cash at closing to use the program. For example, an eligible homeowner with a conventional mortgage may refinance into a VA loan if the new mortgage meets VA and lender requirements.
Unlike an IRRRL, a cash-out refinance requires an appraisal and a full review of your finances. The lender must also show that the refinance meets a net tangible benefit test, such as a lower payment, shorter term, or another benefit recognized by VA.
Consider the trade-off
If you borrow more than your current mortgage payoff, you increase the debt secured by your home. Using the proceeds to consolidate credit card debt may change your monthly payments, but it can also extend repayment and increase total interest costs. Replacing an existing low-rate mortgage may be especially expensive.
For broader options, see conventional refinancing or learn how cash-out refinancing works.
How much equity can you access with a VA cash-out refinance?
Your cash proceeds depend on the appraisal, the amount needed to pay off existing liens, closing costs, and your lender’s loan-to-value limits.
For example:
| Item | Illustrative amount |
| Home’s appraised value | $450,000 |
| Existing mortgage payoff | $300,000 |
| Proposed new mortgage | $380,000 |
| Difference before costs | $80,000 |
The $80,000 difference isn’t necessarily the amount you receive. Financing costs, the VA funding fee, and other required payoffs can reduce your net proceeds. If the home appraises for less than expected, the amount available may shrink further.
VA regulations generally cap a cash-out refinance at 100% of the property’s reasonable value, including any financed funding fee.
That is a program ceiling, not a promise of 100% financing: lenders can set lower limits, and the proposed mortgage must satisfy entitlement and underwriting requirements.
What qualifications and waiting periods apply?
- VA IRRRL eligibility: You generally need an existing VA-backed mortgage on the same home and must certify current or previous qualifying occupancy. VA ordinarily doesn’t require a new appraisal or standard income underwriting, but additional review may apply to a delinquent loan or under lender policies.
- VA cash-out refinance eligibility: You must establish VA loan eligibility, meet your lender’s income and credit requirements, satisfy the property’s appraisal standards, and meet current VA occupancy requirements. The lender must also show that the refinance meets an applicable net tangible benefit test.
How soon can you refinance?
For an IRRRL, federal VA refinancing rules generally require at least six consecutive monthly payments and 210 days after the first payment due date before closing. Both conditions apply.
VA-to-VA cash-out refinances have different seasoning tests. A Type I refinance (new loan amount no greater than the existing payoff) generally requires six consecutive payments and 210 days after the first payment due date.
A Type II refinance (new amount exceeds the payoff) generally requires six payments and 210 days after the first payment was made; the payments need not be consecutive. Refinancing a non-VA mortgage into a VA loan is treated differently.
How do VA refinance funding fees and closing costs compare?
VA refinance funding fees are one-time charges. The VA funding fee schedule lists the following standard rates, effective April 7, 2023:
| Refinance type | Funding fee | Fee on a $300,000 loan |
| VA IRRRL | 0.5% | $1,500 |
| VA cash-out — first use | 2.15% | $6,450 |
| VA cash-out — subsequent use | 3.3% | $9,900 |
These examples assume a $300,000 loan amount before adding the fee. Certain borrowers, including veterans receiving qualifying service-connected disability compensation, are exempt.
Both options may involve lender fees, discount points, title charges, and other closing expenses. Eligible IRRRL costs can often be financed into the new loan. A cash-out refinance may also cover certain expenses through its proceeds, subject to loan limits and program rules.
Financing closing costs means paying interest on those costs over time. A lender credit may reduce your upfront expenses but come with a higher interest rate.
How can you tell whether refinancing will save money?
Start with your current interest rate, mortgage balance, remaining term, and monthly principal and interest payment. Then compare those figures with the proposed refinance and its total costs.
For a simplified example, suppose refinancing costs $3,600 and reduces your monthly principal-and-interest payment by $150:
$3,600 ÷ $150 = 24 months to recover those costs through payment savings.
VA also applies a 36-month fee-recoupment standard to IRRRLs and certain VA-to-VA refinances. Its regulatory calculation excludes specified costs, including the VA funding fee, taxes, and escrow amounts. Your personal break-even calculation may be different.
A lower payment doesn’t necessarily mean a cheaper mortgage. Starting a new 30-year term when you have fewer years remaining on the original loan can increase total interest even with a lower rate.
Use GO Mortgage’s refinance calculator to estimate payments, and compare Loan Estimates to evaluate the costs and terms offered by different lenders.
Can you refinance a home you no longer occupy?
- With an IRRRL, potentially yes: VA allows qualifying borrowers to certify that they previously occupied the property as their home. That can matter if you moved and kept the original VA-financed property.
- With a VA cash-out refinance, different rules apply: You generally must intend to occupy the property as your home. A vacation home or rental-only property doesn’t ordinarily meet that requirement.
Which VA refinance should you choose?
- Consider an IRRRL if you already have a VA mortgage, don’t need equity proceeds, and could benefit from a lower rate or more predictable payments after costs.
- Consider a VA cash-out refinance if you need access to equity or want to evaluate replacing a non-VA mortgage with VA financing. Compare the cost of refinancing your entire mortgage with alternatives that may preserve your existing first mortgage.
Neither option is automatically less expensive. The best next step is to compare what you’ll owe each month, the cash you’ll receive or need at closing, and the total cost of the new loan.
Get started with GO Mortgage to compare your VA refinance options.Provided for educational purposes; this material is not a loan offer or promise of approval. Actual VA refinance eligibility, fees, exemptions, seasoning, appraisal outcomes, loan-to-value limits, and lender criteria depend on the borrower and transaction. A refinance may increase the total finance charges paid over the life of the loan. Discuss your circumstances with your lender.