When you refinance an existing VA mortgage loan with a VA Streamline Refinancing loan, the general rule is that the borrower must get some “tangible benefit” from the new loan in the form of either a lower interest rate and/or monthly payment, or in the form of moving from an adjustable rate mortgage to a fixed rate one.

There is actually documentation required for the interest rate changes and/or monthly payment changes associated with a VA Streamline Refinance loan, also known as a VA Interest Rate Reduction Refinancing Loan or VA IRRRL. Chapter Six of the VA Lender’s Handbook spells out the rules:

“For all IRRRLs, the veteran must sign a statement acknowledging the effect of the refinancing loan on the veteran’s loan payments and interest rate.
 
The statement must show the interest rate and monthly payments for the new loan versus that for the old loan.  The statement must also indicate how long it would take to recoup ALL closing costs (both those included in the loan and those paid outside of closing).”

Why is this required? Because in some cases--especially when the borrower is refinancing from an adjustable rate mortgage loan to a fixed rate loan--the interest rate may increase. The tangible benefit to the borrower in these cases is the fixed rate loan--there is no danger of the rate going any higher at some point in the future due to market conditions or fluctuations.

VA loan rules for VA Streamline Refinance Loans expressly state:
 
“If the monthly payment (PITI) increases by 20 percent or more, the lender must include a certification that the veteran qualifies for the new monthly payment which exceeds the previous payment by 20 percent or more.”

The VA loan rulebook provides a handy example to help us understand what this means. From Chapter Six:
 
·  Vet’s monthly payment decreases by $50.00.
·  Vet pays $5,000 in closing costs (includes all costs – closing costs, funding fee, discounts, etc).
·  Recoup closing costs in 100 months - $5,000 divided by $50.
 
Note:  This would not be required in those limited cases where the payment is not decreasing (reduced term of loan, etc.).”
 
For more information on these requirements, speak to your loan officer.