VA Loan Rate Reduction
VA Loan Rate Reduction Options
More Than One Strategy Can Affect the Cost of a VA Mortgage
Lowering a mortgage rate can reduce a required payment and future interest expense, but rate reduction is not limited to waiting for the market to move. VA financing offers several strategies worth understanding.
VA establishes requirements for the VA home loan guaranty program, but private lenders determine the mortgage pricing they make available.
That includes interest rates, discount points, lender credits and rate-lock pricing.
One lender's quote should not automatically be interpreted as “the VA rate.”
Ways a VA Borrower May Address Mortgage Rate or Payment
The VA Interest Rate Reduction Refinance Loan is specifically designed to refinance an existing VA-backed mortgage into another VA-backed mortgage.
Depending on the transaction, an IRRRL may be used to:
- Reduce the interest rate
- Reduce required principal-and-interest payments
- Replace an adjustable-rate VA mortgage with fixed-rate financing
- Change the mortgage term
VA generally does not require a new appraisal or traditional full credit underwriting for a standard qualifying IRRRL, although individual lenders may impose additional requirements.
2. Permanently Buy Down the Rate With Discount Points
Discount points are charges paid in exchange for different mortgage interest-rate pricing.
One discount point generally equals 1% of the loan amount.
However, one point does not automatically reduce the rate by any fixed percentage. The rate improvement depends on the lender's pricing and mortgage-market conditions at that time.
One useful comparison is how long the monthly payment savings from the lower rate may take to recover the additional upfront point cost.
The complete analysis should also consider loan balance, amortization, closing costs, expected ownership period and whether you expect to refinance again.
VA guidance permits a maximum of two discount points to be included in the new IRRRL loan amount. A borrower may pay additional reasonable discount points in cash, subject to applicable lender and loan requirements.
Financing points increases the mortgage balance, so the cost and long-term benefit should still be compared.
3. Seller-Paid Points and Closing Costs
On a VA purchase transaction, the buyer and seller may negotiate who pays various allowable closing costs.
VA guidance also permits seller-paid discount points under applicable rules.
VA allows a seller or builder to provide credits toward eligible buyer closing costs.
Ordinary closing-cost credits are treated differently from VA seller concessions for purposes of the 4% concession limit.
Seller funds may also be used for permitted discount points or a temporary rate buydown.
Additional points beyond normal market pricing and seller-funded temporary buydowns can be treated as seller concessions and are subject to applicable limits.
Depending on the transaction, it may be useful to compare permitted uses such as closing costs, discount points, temporary buydown funding or other eligible expenses.
VA allows temporary buydowns on qualifying fixed-rate VA loans.
Temporary buydowns can generally last from one to three years.
Common structures may include arrangements commonly described as a 1-0, 2-1 or 3-2-1 buydown.
VA currently permits temporary buydowns on qualifying fixed-rate:
- VA purchase loans
- VA cash-out refinances
- VA IRRRLs
The funds may be provided by the seller, builder, lender or Veteran, subject to VA requirements.
Escrowed buydown funds supplement the borrower's payments during the temporary period. Once that period ends, the borrower is responsible for the full scheduled payment based on the underlying note rate.
A temporary buydown cannot be used simply to make an otherwise unaffordable mortgage qualify.
VA currently limits seller concessions to no more than 4% of the property's established reasonable value. Ordinary closing costs and normal discount points are treated differently under VA's seller-concession rules.
5. Refinancing a Non-VA Mortgage Into VA Financing
An IRRRL can only refinance an existing VA-backed mortgage.
But an eligible borrower with another type of mortgage may potentially refinance that mortgage using a qualifying VA cash-out refinance.
The existing mortgage might be conventional, FHA, USDA or another qualifying loan secured by the home.
A VA cash-out refinance requires full qualification and must satisfy applicable VA appraisal, underwriting, loan-to-value and lender requirements.
6. An Existing VA Loan May Be Assumable
VA-guaranteed mortgages are generally assumable when the person assuming the loan qualifies and the required approval process is completed.
Instead of obtaining an entirely new mortgage for the assumed balance, the purchaser takes over the existing VA mortgage obligation and its existing loan terms.
This can be particularly relevant when the existing mortgage has terms that differ materially from new mortgages available at the time of purchase.
The buyer still must address any difference between the purchase price and the remaining assumed-loan balance.
The seller's entitlement may remain tied to the assumed mortgage unless applicable requirements for substitution or restoration of entitlement are satisfied. Buyers and sellers should understand the entitlement consequences before relying on an assumption strategy.
7. ARM to Fixed: Sometimes the Goal Is Rate Stability
A borrower with an existing VA adjustable-rate mortgage may use a qualifying IRRRL to move into fixed-rate financing.
VA specifically recognizes that an ARM-to-fixed IRRRL may have a fixed interest rate that is higher than the ARM's current rate.
The potential benefit in that situation is not necessarily an immediate rate reduction—it may be replacing future rate uncertainty with a fixed payment structure.
8. Compare Different Mortgage Terms
Mortgage pricing may differ between loan terms.
Depending on the lender and market, different terms such as 30-year, 25-year, 20-year or 15-year financing may have different available pricing.
Even when a shorter-term mortgage has favorable rate pricing, repayment of the principal over fewer years can produce a substantially higher monthly payment.
A borrower can satisfy VA requirements and still receive different pricing from different lenders.
One lender may offer different:
- Interest-rate pricing
- Discount-point pricing
- Lender credits
- Lender-controlled fees
- Rate-lock terms
As a mortgage broker, VA Help Center LLC can evaluate available pricing through multiple approved wholesale lenders rather than being limited to one institution's mortgage products.
That does not guarantee the lowest rate or lowest cost in the entire market, but it allows multiple available options to be compared.
Some VA Benefits Reduce Cost Without Reducing the Note Rate
Qualifying borrowers may be exempt from the VA funding fee. That can reduce the upfront or financed loan cost but does not itself reduce the interest rate.
VA-guaranteed mortgages generally do not require monthly private mortgage insurance, which can reduce monthly housing expense without changing the note rate.
Lender credits may reduce eligible upfront closing costs but commonly involve different—and potentially higher— interest-rate pricing.
The Lowest Rate Is Not Automatically the Lowest-Cost Mortgage
Lower-Rate Option
May have a lower note rate but require more discount points or other upfront cost.
Lower-Upfront-Cost Option
May have a somewhat higher note rate but require fewer points or provide a lender credit toward eligible costs.
Which structure makes more sense can depend heavily on how long you expect to keep the mortgage and how much the lower rate actually saves.
You can also review our No-Closing-Cost VA Loan Options guide for more information about lender-credit structures.
When Comparing Rate-Reduction Options, Look at the Whole Loan
- Interest rate
- APR
- Discount points
- Origination charges
- Lender credits
- Closing costs
- Cash required at closing
- New mortgage balance
- Monthly payment
- Loan term
- Break-even or recoupment period
- How long you expect to keep the mortgage
Mortgage rates move in cycles, but nobody can reliably know in advance where the exact bottom of a future rate cycle will occur.
Read our VA Mortgage Rates: Historical Perspective guide to understand how mortgage-rate environments can change over time.
VA Rate Strategies at a Glance
| Strategy | What It Can Do | Important Consideration |
|---|---|---|
| VA IRRRL | Refinance an existing VA-backed mortgage into another VA-backed mortgage. | Must satisfy applicable VA refinance requirements and lender requirements. |
| Discount Points | Obtain different permanent interest-rate pricing. | Compare upfront point cost with expected future savings. |
| IRRRL Financed Points | Up to two discount points may be included in the eligible IRRRL loan amount. | Financing points increases the mortgage balance. |
| Seller-Paid Costs / Points | May reduce buyer out-of-pocket costs or help obtain different rate pricing. | VA closing-cost and seller-concession rules apply. |
| Temporary Buydown | Reduces effective borrower payments during an initial funded period. | Does not permanently change the note rate; borrower qualifies using the full payment. |
| VA Cash-Out Refinance | May refinance qualifying non-VA mortgage debt into VA financing. | Full underwriting, appraisal and applicable VA refinance requirements apply. |
| VA Assumption | A qualified purchaser may take over an existing VA loan and its existing terms. | Approval, qualification, purchase-price difference and seller entitlement must be addressed. |
| ARM to Fixed | Can replace future rate uncertainty with fixed-rate financing. | The new fixed rate may be higher than the ARM's current rate. |
| Compare Lenders | Different lenders may have different rates, points, credits and fees. | Compare the complete loan structure, not only the note rate. |
VA Loan Rate Reduction FAQs
Does VA set mortgage interest rates?
No. VA does not prescribe one interest rate for ordinary VA-guaranteed mortgages. Private lenders determine the mortgage pricing they make available.
What is the most common way to lower the rate on an existing VA loan?
The VA Interest Rate Reduction Refinance Loan, commonly called an IRRRL or VA Streamline, is specifically designed to refinance an existing VA-backed mortgage into another VA-backed mortgage.
Can I permanently buy down a VA mortgage rate?
VA permits reasonable discount points. Points represent an upfront cost used to obtain different interest-rate pricing. The amount of rate reduction depends on current lender pricing.
Can discount points be financed on an IRRRL?
VA currently permits up to two discount points to be included in the new IRRRL loan amount. Financing them increases the mortgage balance.
Can the seller pay discount points on a VA purchase?
VA permits sellers and other permitted parties to pay certain buyer costs, including discount points, subject to applicable VA and transaction requirements.
What is a temporary VA buydown?
A temporary buydown uses funds held in an escrow arrangement to supplement scheduled mortgage payments during an initial period. It does not permanently change the underlying note rate.
How long can a VA temporary buydown last?
VA currently permits qualifying temporary buydown structures lasting from one to three years.
Can a temporary buydown be used on a VA refinance?
Yes. VA currently permits temporary buydowns on qualifying fixed-rate purchase loans, VA cash-out refinances and IRRRLs, subject to applicable requirements.
Does a temporary buydown help me qualify for a larger loan?
It cannot be used simply to qualify the borrower using the temporarily reduced payment. VA requires lenders to qualify the borrower using the full payment that applies after the temporary buydown ends.
Can I refinance into VA if my existing mortgage is not VA?
Potentially. An IRRRL is VA-to-VA only, but an eligible borrower may be able to refinance qualifying non-VA mortgage debt using a VA cash-out refinance.
Can somebody assume an existing VA mortgage?
VA-guaranteed mortgages are generally assumable when the assuming borrower qualifies and the required approval process is completed. Seller entitlement and any difference between the purchase price and assumed loan balance must also be considered.
Can an IRRRL move me from an ARM to a fixed rate?
Yes, when applicable requirements are satisfied. VA expressly recognizes that the new fixed rate may even be higher than the ARM's current rate because the benefit may involve eliminating future adjustable-rate risk.
Is the lowest interest rate automatically the best option?
No. A lower note rate may require more discount points or other upfront cost. Compare the interest rate, APR, points, lender credits, closing costs, payment, loan balance and how long you expect to keep the mortgage.
Can changing lenders affect my VA mortgage pricing?
Potentially. VA lenders can have different interest-rate pricing, discount points, lender credits, fees and lock terms. The complete transaction must be compared.
Want to Compare Your VA Rate Options?
Request a VA loan review through VA Loan Today. Your mortgage inquiry can be referred to VA Help Center LLC to compare available lenders, loan programs, points, lender-credit structures and other mortgage options based on your individual circumstances.
U.S. Department of Veterans Affairs — VA Home Loan guidance and VA Lender's Handbook provisions addressing interest rates, discount points, IRRRLs, temporary buydowns, seller concessions, assumptions and VA refinancing.
Consumer Financial Protection Bureau — mortgage advertising, interest-rate, APR, discount-point and lender-credit guidance.
VA — Interest Rate Reduction Refinance Loan
VA — Temporary Buydowns
VA — Funding Fee and Loan Closing Costs
Mortgage brokerage services are provided by VA Help Center LLC – NMLS #1816438.
VA Loan Today and VA Help Center LLC are not affiliated with or endorsed by the U.S. Department of Veterans Affairs or any government agency.
VA does not prescribe one interest rate for ordinary VA-guaranteed mortgages. Interest rates, APRs, discount points, lender credits, closing costs, rate-lock terms and loan availability vary according to lender, borrower, property, transaction and market conditions.
Discount points involve an upfront cost in exchange for different mortgage pricing. The amount of rate reduction associated with any number of points is not fixed.
Temporary buydowns do not permanently reduce the contractual note rate. Borrowers must satisfy applicable underwriting requirements based on the full required payment after the temporary buydown period.
VA IRRRLs, cash-out refinances, assumptions, temporary buydowns, seller-paid costs, discount-point structures and other strategies remain subject to applicable VA requirements, lender requirements and borrower qualification.
VA loan assumptions require approval and qualification. A Veteran seller's entitlement may remain charged to an assumed VA loan unless applicable substitution or restoration requirements are satisfied.
No lender, broker, rate-reduction strategy or loan program is guaranteed to provide the lowest interest rate or lowest overall mortgage cost in every transaction.
Nothing on this page is a commitment to lend, rate-lock agreement or guarantee of qualification, savings or future mortgage pricing.
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