Sadly, the military divorce rate exceeds the divorce rate among the general population. It is understandable, though, given the pressures, deployments, and sacrifices.
If the veteran used VA loan financing to obtain the marital home, in what situation can they use an Interest Rate Reduction Refinance Loan (IRRRL) to refinance the existing mortgage?
The U.S. Department of Veterans Affairs (VA) Interest Rate Reduction Refinance Loan (IRRRL) generally lowers the interest rate by refinancing an existing VA home loan. By obtaining a lower interest rate, the monthly mortgage payment should decrease. In addition, no additional charge is made against the veteran’s entitlement because of a loan for the purpose of an interest rate reduction. The Veterans’ Disability Compensation and Housing Benefits Amendments of 1980 introduced the IRRRL program to assist veterans who wished to take advantage of low interest rates to reduce their monthly payments.
First, it is essential to note that only qualified veterans can use VA home loan financing. Therefore, if the spouse retaining the marital home is not an eligible veteran, they would need to either leave the existing mortgage in place or obtain another mortgage financing option should they be required to refinance the current mortgage.
In a divorce situation, an Interest Rate Reduction Refinance Loan (IRRRL) may also be used to achieve the following:
- Removing the vacating spouse from the existing VA home loan.
- Removing the vacating spouse while adding a different spouse to new VA home financing.
- Removing one veteran alone from the existing mortgage while transferring ownership to a different veteran who will be substituting their VA entitlement to the new loan in their name.
Additional requirements may need to be met for the qualified veteran to use the IRRRL to refinance the existing VA home loan. For example, the new rate and monthly payment for the IRRRL must be lower than the previous loan’s monthly payment. However, this condition does not apply if you refinance an Adjustable Rate Mortgage (ARM) into a fixed-rate mortgage.
Suppose the divorcing veteran needs to refinance the existing VA home loan in order to execute an equity buy-out order, and/or the current interest rate and mortgage payment will not meet the requirements of the IRRRL. In that case, the veteran may qualify for a cash-out mortgage using VA home loan financing.
There are many options available for divorcing veterans to retain the use of their hardearned benefits of VA home mortgage financing. Working with a knowledgeable Certified Divorce Lending Professional (CDLP™) may be invaluable to the professional divorce team. The CDLP™ brings tremendous value to the divorce team during the settlement process. Their background knowledge of family law, financial and tax planning, real property, and mortgage financing allows them to better support and assist the divorce team and divorcing homeowners.
Do you have questions about how divorce may impact your ability to obtain mortgage financing? A Certified Divorce Lending Professional’s (CDLP™) knowledge and experience can help make the transition much smoother and more successful for all parties involved.
Working with a Certified Divorce Lending Professional (CDLP™) and incorporating Divorce Mortgage Planning into the divorce settlement may help both spouses obtain new mortgage financing post-divorce.
Contact a CDLP™ today for a copy of the Divorcing your Mortgage Homeowner Workbook, a guide to credit, real estate, and mortgage financing after divorce. This workbook will help you organize, prepare, and understand your mortgage financing position, whether you need to refinance the marital home in an Equity Buy-Out situation or be ready to sell and purchase a new home post-divorce.
If you’re interested in purchasing a new home or refinancing in the Portland area, be sure to contact us today to find out how we can help make your dreams come true.