The 36-Month Recoupment Test: Why Some IRRRL Quotes Never Should Have Been Offered
The Number That Decides Whether Your IRRRL Can Close
Skip the sales pitch. If you're on this site, you already know what an IRRRL is. What you might not have run yet is the one number that determines whether your specific quote is even allowed to close: recoupment.
Recoupment is total closing costs divided by monthly payment savings. The result is your break-even in months. The VA sets a hard ceiling on that number for IRRRLs: 36 months. Not a suggestion, not a lender preference, a ceiling. Cross it, and the loan cannot close as an IRRRL, full stop.
A Side-by-Side Worked Example
Betty, a veteran shopping her IRRRL, had two quotes to compare. Quote one: $2,400 in closing costs, $80 a month in savings. $2,400 divided by $80 is 30. Thirty months to break even, comfortably under the 36-month ceiling. Eligible.
Quote two: same $80 in monthly savings, but $3,600 in closing costs. $3,600 divided by $80 is 45. Forty-five months to break even. That's nine months past the VA's limit. That loan cannot close as an IRRRL as quoted, regardless of what the lender's paperwork says.
Same veteran, same savings, two very different outcomes, because the costs baked into the loan were different.
Why the Same Loan Prices Differently Across Lenders
If you've shopped more than one IRRRL quote, you already know the numbers rarely match. That's overlays at work, lender-specific cost structures and margins layered on top of what the VA actually requires. One lender's version of your loan clears recoupment easily. Another lender's version, built on the exact same VA guidelines, doesn't come close.
This is where a broker model works differently than a single retail lender. I'm not stuck presenting one lender's cost structure as the only option. I can run your file across multiple VA lenders and find whichever one actually clears the recoupment test for your numbers, not just the one that happens to sit on my rate sheet.
Run This Before You Sign Anything
Whatever quote is sitting in your inbox right now, do this: write down the total closing costs. Write down the monthly savings. Divide the first number by the second. That's your break-even in months.
Under 36, you're likely looking at a legitimate, VA-eligible IRRRL. Over 36, ask the lender directly how they plan to close it, because as it stands, they can't, not as an IRRRL. This single calculation is the fastest way to separate a real quote from one that was never viable to begin with.
Get a Second Set of Eyes on Your Numbers
I'm Jason Sharon, a licensed mortgage broker with Home Loans Inc, licensed across SC, GA, FL, AL, MS, NC, VA, WV, WY, and IA. If you want someone to run your recoupment math against multiple VA lenders instead of just one, call 843-569-7283.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448.