Interest Rate Reduction Refinance Loan (IRRRL)

Categories: Credit, Bonds

An Interest Rate Reduction Refinance Loan, or IRRRL (pronounced “errrrrrrl”…we’d imagine), is a home loan refinancing option available to homeowners with a VA loan.

The IRRRL is actually a really sweet deal: if we’ve got a VA loan, then we don’t need to go through the rigmarole of getting pre-approved for refinancing, because we’re pretty much guaranteed approval. No home appraisal or sky-high credit score is necessary. This makes the process much faster, easier, and more efficient for everyone involved, which is why the IRRRL is also known as the VA Streamline Refinance Program.

Related or Semi-related Video

Finance: What are Interest Rate Options?3 Views

00:00

Finance Allah Shmoop What are interest rate options All right

00:07

people you may need a big loan in three years

00:11

It's all about the storms And the big sees you

00:13

know with the amount of destruction they'll do to the

00:15

oil rigs you manage out there right you big oil

00:17

company Global warming has in fact changed weather patterns So

00:21

you have no idea if you'll actually need five billion

00:23

dollars in debt to buy and or build a new

00:26

one But today you mister or missus or Miss CEO

00:31

today interest rates are cheap The Fed is almost giving

00:34

away money in two and a half percent interest which

00:36

means that you can get a loan at Summit for

00:39

ish percent interest rate since so much money is involved

00:43

here like five billion dollars Well the move of one

00:45

percent or one hundred basis points is big and times

00:49

were good now and well you really want certainty So

00:52

in order to reduce risk you buy an interest rate

00:56

option that is You pay one hundred million dollars for

00:59

the right three years from now too Then get alone

01:03

of call it three billion dollars and note that you

01:06

don't have to get the full five billion dollars if

01:09

rates go up in the last two billion is expensive

01:12

money while fen you figure inflation has hit big time

01:15

and you can just well raise prices on oil and

01:18

you know or your services to the big oil Cos

01:21

right because that's what you do for a living That

01:23

hundred million dollars is a call option on future interest

01:27

rates that well may or may not be there right

01:29

Like it might expire worthless Or it might be worth

01:31

a fortune if rates or seven eight nine percent So

01:34

what happens if the Fed doesn't budge and rates are

01:36

identical in three years Toe what they are today you

01:39

lose it All right You lose all hundred million dollars

01:42

for that call option You bought Goldman Sachs or Morgan

01:45

Stanley or whatever Big Bank took the risk on the

01:47

other end of that trade Just made one hundred very

01:50

large just for you know being there But you don't

01:53

feel bad about it Why Well because interest rates are

01:55

still then super cheap At four percent it's kind of

01:58

like term life insurance only for the finance world Piccoli

02:02

for big oil companies or big capital expense kind of

02:05

cos every month that goes by and you lose the

02:07

fifty eight bucks you spent on that million dollar policy

02:10

you personally bought for your wife and kids If you

02:14

get hit by a bus well you feel good to

02:16

have wasted that fifty eight dollars because well the alternative

02:20

is you know that you don't have a life You

02:22

know we don't just mean that Then your social calendar's

02:24

empty And your best friends are your Star Wars action 00:02:26.92 --> [endTime] figures no

Find other enlightening terms in Shmoop Finance Genius Bar(f)