Refinancing a VA loan can be a smart financial move if you want to lower your interest rate, reduce your monthly payments, or adjust your loan terms. VA loans, backed by the U.S. Department of Veterans Affairs, offer competitive terms and benefits for eligible veterans, active-duty service members, and their families. If interest rates have dropped or your financial situation has improved, refinancing your VA loan could help you save thousands over the life of your loan.
In this guide, we’ll walk you through the different ways to refinance a VA loan, the eligibility requirements, and the steps involved in securing a lower interest rate in 2025.
What is VA Loan Refinancing?
VA loan refinancing allows borrowers with an existing VA loan to replace their current mortgage with a new loan, typically to secure a lower interest rate or adjust the loan terms. There are two primary types of VA loan refinancing options:
- Interest Rate Reduction Refinance Loan (IRRRL) – Also known as a VA Streamline Refinance, this option is designed to lower your interest rate with minimal paperwork and no need for a new appraisal.
- VA Cash-Out Refinance – This allows you to refinance your existing loan while taking cash out from your home’s equity.
Benefits of Refinancing a VA Loan
✅ Lower monthly payments
✅ Reduced overall interest paid over the life of the loan
✅ Potential to shorten loan terms and pay off the mortgage faster
✅ Option to switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan
✅ No private mortgage insurance (PMI) requirement
Types of VA Loan Refinancing Options
1. Interest Rate Reduction Refinance Loan (IRRRL)
The Interest Rate Reduction Refinance Loan (IRRRL) is the most straightforward way to refinance a VA loan. It’s also called a VA Streamline Refinance because it requires minimal paperwork and typically doesn’t require a new appraisal or income verification.
✅ Key Features of an IRRRL:
- No minimum credit score requirement (though lenders may impose their own standards)
- No appraisal or income verification required in most cases
- Can include the closing costs in the loan amount
- Must result in a lower interest rate or shift from an adjustable to a fixed rate
🚨 Eligibility Requirements for an IRRRL:
✔️ You must have an existing VA loan
✔️ The new loan must have a lower interest rate unless converting from an ARM to a fixed rate
✔️ You must certify that you previously lived in the home
✔️ Your current VA loan must not be in default
How to Apply for an IRRRL:
- Contact a VA-approved lender.
- Provide your existing VA loan information.
- Complete a streamlined loan application.
- The lender will confirm your eligibility and the interest rate reduction.
- Close on the new loan.
👉 Example: If you have a 5% interest rate on a $300,000 loan and refinance to a 3.5% rate, your monthly payment could decrease by over $250, saving you thousands in interest over time.
2. VA Cash-Out Refinance
The VA Cash-Out Refinance allows you to replace your existing VA loan (or even a non-VA loan) with a new VA loan and take cash out from your home’s equity. This option is useful for debt consolidation, home improvements, or other major expenses.
✅ Key Features of a VA Cash-Out Refinance:
- Can refinance up to 100% of the home’s value (depending on the lender)
- Available to veterans and active-duty service members
- Requires a new appraisal and income verification
- Closing costs can be rolled into the loan amount
🚨 Eligibility Requirements for a VA Cash-Out Refinance:
✔️ Must meet VA loan entitlement requirements
✔️ Property must serve as your primary residence
✔️ Minimum credit score of 620 (depending on lender)
✔️ Debt-to-income (DTI) ratio must meet lender standards
How to Apply for a VA Cash-Out Refinance:
- Contact a VA-approved lender.
- Get a new appraisal to determine the home’s current value.
- Provide proof of income and employment.
- Complete a loan application.
- Close on the new loan and receive cash at closing (if applicable).
👉 Example: If your home is worth $400,000 and you owe $250,000, you could refinance up to $400,000 and take out up to $150,000 in cash (minus closing costs).
Eligibility Criteria for VA Loan Refinancing in 2025
To qualify for a VA loan refinance, you must meet the following general requirements:
✅ Service Requirements:
- Active-duty service for at least 90 consecutive days during wartime or 181 days during peacetime
- At least six years of service in the National Guard or Reserves
- Surviving spouse of a service member who died in the line of duty or as a result of a service-connected disability
✅ Certificate of Eligibility (COE):
- You must provide a valid Certificate of Eligibility (COE), which shows your entitlement to VA loan benefits.
✅ Occupancy Requirements:
- For an IRRRL, you must have previously lived in the home.
- For a cash-out refinance, you must currently occupy the home.
Costs Associated with VA Loan Refinancing
1. VA Funding Fee
- IRRRL: 0.5% of the loan amount
- Cash-Out Refinance: 2.15% for first-time use, 3.3% for subsequent use
- Disabled veterans are typically exempt from the funding fee
2. Closing Costs
- Origination fee (up to 1% of loan amount)
- Title search and insurance fees
- Discount points (optional)
- Appraisal fees (for cash-out refinance)
👉 You can roll closing costs into the loan amount for both IRRRL and cash-out refinances.
When Should You Refinance a VA Loan?
You should consider refinancing your VA loan if:
✔️ Interest rates have dropped by at least 0.5%–1%
✔️ You plan to stay in the home long enough to recover closing costs
✔️ You want to switch from an adjustable-rate to a fixed-rate loan
✔️ You need to consolidate high-interest debt or fund major expenses
Pros and Cons of VA Loan Refinancing
✅ Pros:
✔️ Lower monthly payments
✔️ No private mortgage insurance (PMI)
✔️ Flexible credit requirements
✔️ Can consolidate debt with cash-out refinance
❌ Cons:
❌ VA funding fee adds to loan cost
❌ Closing costs can reduce savings
❌ Cash-out refinance increases total loan balance
Example: How Much You Could Save
- Current Loan: $300,000 at 5% interest
- Monthly Payment: $1,610
- New Rate (after refinancing): 3.5%
- New Monthly Payment: $1,347
Savings: $263 per month or over $3,100 per year
Steps to Refinance a VA Loan in 2025
- Review your current loan terms – Check your interest rate, remaining balance, and monthly payments.
- Research interest rates – Compare rates from multiple VA-approved lenders.
- Gather documents – Include your COE, proof of income, and current mortgage statement.
- Apply with a VA-approved lender – Choose between an IRRRL or cash-out refinance.
- Close on the new loan – Sign the paperwork and start saving.
Conclusion
Refinancing a VA loan in 2025 is a strategic way to lower your interest rate, reduce your monthly payments, and improve your overall financial health. Whether you opt for an IRRRL or a cash-out refinance, understanding the process and requirements will help you maximize your benefits. By working with a trusted VA-approved lender and evaluating your long-term goals, you can make the most of your VA loan benefits and secure a more affordable future.