Refinancing is usually almost as much work as getting your mortgage in the first place. Sure, you won’t have to pack up boxes and move this time. But your lender usually requires the same mountain of paperwork as they did when you first got your home loan. 

At least, that tends to be the case. But if you choose a streamline refinance, you can skip some (or a lot) of the hassle. And if you already have a VA loan, the VA has just the thing for you.

There’s a VA streamline refinance option called an interest rate reduction refinance loan (IRRRL). 

Here are seven benefits of a VA streamline refinance that all current VA borrowers should know. 

#1: No appraisal requirement from the VA

When someone takes out a new mortgage or refinances an existing one, lenders generally want to be sure that the property is still worth it. The home acts as collateral for a mortgage. If you don’t repay, the lender can take it and sell it. If the home is worth less than they expect, the lender could end up eating a big loss.

That’s why most refinances require the borrower to get — and pay for — a professional appraisal. But a VA streamline refinance is different. Specifically, the VA says it’s okay with guaranteeing these loans even without the appraisal.  

Since an appraisal usually costs at least a few hundred dollars (and that’s just for a single-family home), this can be a big perk. 

One quick thing to note here: the VA doesn’t require an appraisal. That doesn’t mean your lender doesn’t want one. Some lenders make the appraisal part of their IRRRL process, so you might still be on the hook for this cost. 

#2: No credit underwriting requirement from the VA

Underwriting is the process lenders go through to make sure you can repay what you borrow. But like the appraisal, the VA does away with the typical requirement here. 

With a VA streamline refinance, lenders aren’t required to conduct any underwriting or collect any credit information about the borrower. As long as your mortgage isn’t more than 30 days overdue and the refi won’t increase your monthly payment by more than 20%, you can skip this hassle. 

This means you could get this loan even if your credit score has taken a dip since you initially got your mortgage. 

Again, the VA doesn’t require underwriting, but the lender might want to do that due diligence anyway. 

#3: Guaranteed financial upside

For the VA to financially back a streamline refinance, it needs to provide the borrower (that’s you) with what’s called a “net tangible benefit.” That means the VA only allows these refinances when they will offer the homeowner some financial upside.

Originally, IRRRLs primarily got VA backing in the case when the borrower would get a lower interest rate. Specifically, Title 38 of the U.S. Code (Veterans’ Benefits), § 3709, calls for an interest rate reduction of at least 0.5% (i.e., 50 basis points, and each basis points equals 0.01%).

But a lower interest rate isn’t the only way refinancing your mortgage can be financially advantageous. The VA also backs IRRRLs when the borrower refinances from a mortgage with an adjustable interest rate to a fixed one. Because a fixed-rate loan locks in your principal and interest payments (the lion’s share of your monthly mortgage dues), it makes budgeting much easier.

You can also use a VA streamline refinance to move from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) if it will mean getting a much lower interest rate. And you can usually use it to shorten your loan term (how much time you have to pay off your loan). By paying off your mortgage faster, you save a lot in interest. And the VA quantifies that as a net tangible benefit. 

#4: Low VA funding fee 

All VA loans and refinances come with a funding fee. 

Here’s the good news: with a VA streamline refinance, the VA funding fee is as low as it can get. You’ll only need to pay 0.5% of your total loan amount. 

#5: Clear break-even point

The VA requires lenders to provide you with key details when you get an IRRRL. Specifically, you’ll have to sign a statement that says you understand how the new mortgage affects your loan payments and interest rate. 

The statement also has to tell you your break-even point. That’s the time at which you’ll have recouped all the closing costs you paid. If you paid $2,000 in closing costs and your monthly payment goes down by $100, for example, your break-even point will be in 20 months ($2,000 ÷ $100). After 20 months, you’ll truly start saving that $100.

If you want to figure out your break-even point earlier, our refinance calculator can help. 

#6: Option for minimal out-of-pocket costs

With an IRRRL, the VA lets borrowers roll the funding fee and closing costs into the new mortgage. That means you can pay next to nothing at the closing table. 

Be advised, though, that if you go this route, you’ll pay interest on those fees. And that means they’ll end up costing you more overall. 

#7: You can rent the house out

With the other kind of VA refinance (a cash-out refi), you have to certify that you currently live in the house. But with a VA streamline refinance, you only have to prove that you used to live there. So you can use this option to get a new mortgage even if you’re currently living elsewhere and using the property to generate rental income. 

VA streamline refinance drawbacks

There are a few reasons why you might want to choose a VA cash-out refi or another type of refinance. An IRRRL isn’t an option for you if:

• You won’t get a net tangible benefit from the refinance 
• You want to cash out some of your equity
• You don’t currently have a VA loan

With only a few downsides to consider, the VA streamline refinance might sound like a great option to you. If it does, you can start exploring your choices today. Check out current IRRRL interest rates from leading VA lenders.