VA's 0.5% Rule: IRRRL Expert Guide for January 2026

Rate Improvement Requirement: The 0.5% Rule Explained

January 2026

As a VA lender for over two decades, I've guided thousands of veterans through the IRRRL (Interest Rate Reduction Refinance Loan) process. One question consistently arises: "What's this 0.5% rule I keep hearing about?" Today, I'll demystify this critical requirement that impacts every VA refinance.

The Fundamental Requirement

What most veterans don't realize is that the VA's 0.5% rule isn't just bureaucratic red tape—it's actually designed to protect you. The rule requires that your new interest rate must be at least half a percentage point lower than your current rate to qualify for an IRRRL.

In my experience with VA lending, this requirement serves a crucial purpose: ensuring refinances provide genuine financial benefit rather than simply generating fees for lenders. After years in the industry, I've unfortunately witnessed lenders push refinances that barely lowered rates while charging substantial fees.

The Net Tangible Benefit Test

The key concept to understand is what the VA calls the "net tangible benefit" test. Beyond the 0.5% rate reduction, the refinance must demonstrably improve your financial situation. This means your recoupment period—the time needed to recover closing costs through monthly savings—must be reasonable.

I created EZ-IRRRL because I saw veterans paying excessive origination fees that extended their break-even point, sometimes beyond what made financial sense. Our automated system eliminates these origination costs, allowing you to realize benefits from your rate reduction much faster.

Fixed-to-Fixed vs. ARM Refinances

Here's the insider knowledge I share with my clients: The 0.5% rule applies specifically to fixed-to-fixed refinances. If you're refinancing from an adjustable-rate mortgage (ARM) to a fixed-rate loan, different considerations apply. The VA recognizes the inherent benefit of moving from a potentially volatile ARM to a stable fixed rate.

Exceptions and Considerations

Veterans often ask me about exceptions to this rule. While the 0.5% threshold is generally firm, there are special circumstances like refinancing from a 30-year to a 15-year term where the net benefit might outweigh a slightly smaller rate reduction.

What separates our approach at EZ-IRRRL is our automated system that eliminates the human errors and excessive fees that typically diminish the benefits of that 0.5% rate improvement. Remember that unlike virtually every other loan type, IRRRLs require NO income verification, NO appraisal, and NO debt-to-income assessment—making them uniquely streamlined for veterans.

The bottom line: The 0.5% rule exists to ensure meaningful rate improvements that translate to real savings. By eliminating origination costs through automation, we maximize the financial benefit of every rate reduction for the veterans we serve.

This is not an offer to lend. Rates subject to change. Get an official Loan Estimate before choosing a loan. EZ-IRRRL is not affiliated with the U.S. Government.