The military divorce rate sadly exceeds that of the general population, driven by unique pressures, deployments, and sacrifices. When a veteran has used VA loan financing to purchase the marital home, specific refinancing options, such as the Interest Rate Reduction Refinance Loan (IRRRL), may be available to them.
What is an Interest Rate Reduction Refinance Loan (IRRRL)?
The U.S. Department of Veterans Affairs (VA) Interest Rate Reduction Refinance Loan (IRRRL) helps veterans lower their interest rates by refinancing an existing VA home loan. This typically results in a decreased monthly mortgage payment. Importantly, no additional charge is made against the veteran’s entitlement with an interest rate reduction loan. The Veterans’ Disability Compensation and Housing Benefits Amendments of 1980 introduced the IRRRL program to help veterans take advantage of lower interest rates.
Eligibility for IRRRL in Divorce Situations
Only qualified veterans can utilize VA home loan financing. If the spouse retaining the marital home is not an eligible veteran, they must either leave the existing mortgage in place or seek alternative mortgage financing options if required to refinance the current mortgage.
Using IRRRL During Divorce
In a divorce, an IRRRL can be used to:
- Remove the vacating spouse from the existing VA home loan.
- Remove the vacating spouse while adding a new spouse to the VA home loan.
- Remove one veteran from the existing mortgage and transfer ownership to another veteran who will substitute their VA entitlement to the new loan in their name.
Additional Requirements for IRRRL
For a qualified veteran to use the IRRRL, the new interest rate and monthly payment must be lower than the previous loan’s monthly payment. This condition is waived if refinancing an Adjustable Rate Mortgage (ARM) into a fixed-rate mortgage.
Alternatives to IRRRL for Divorcing Veterans
If the veteran needs to refinance the existing VA home loan to execute an equity buy-out order or if the current interest rate and mortgage payment do not meet IRRRL requirements, they may qualify for a cash-out mortgage using VA home loan financing.
The Role of a Certified Divorce Lending Professional (CDLP®)
Numerous options are available for divorcing veterans to retain their VA home mortgage financing benefits. Working with a knowledgeable Certified Divorce Lending Professional (CDLP®) can be invaluable. A CDLP® brings tremendous value to the divorce team during the settlement process. Their expertise in family law, financial and tax planning, real property, and mortgage financing allows them to better support and assist the divorce team and divorcing homeowners.
Benefits of Working with a CDLP®
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 make the transition much smoother and more successful for all parties involved.
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 get organized, be prepared, and understand your mortgage financing position, whether you need to refinance the marital home in an Equity Buy-Out situation or prepare to sell and purchase a new home post-divorce.
This is for informational purposes only and not for the purpose of providing legal or tax advice. You should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are estimates provided for informational purposes only and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations. The information contained in this newsletter has been prepared by, or purchased from, an independent third party and is distributed for consumer education purposes.
Copyright 2022—All Rights Divorce Lending Association
