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Is It Smart To Refinance Through HARP?

by Charles on February 9, 2012 · 14 comments

I bought my house back in 2006 and according to Zillow, my home value has declined some 17% to date. Luckily for me, I had put down 25% as my down payment and I still have some equity built in for my property. But for many others, this is not the case as millions of homeowners are suffering from being down-under with their homes. It is estimated that there are some 11 million homeowners that are under-water with their mortgages. In addition, for the past 5 years, some 4 million homes have been lost to foreclosures. Although the rate of foreclosed homes is decreasing somewhat recently compared to 2010, the rate is still very high compared to historic averages.

foreclosed notice on a home

So What’s Next?
If you are one of the 11 million who are under-water with your mortgage, you can consider refinancing government assisted refinancing program such as HARP (Home Affordable Refinancing Program). It allows homeowners to refinance their homes under current mortgage rates even though you owe more for your home than what the home is actually worth. At least with lower rates, you can save some money through lower interest rates. I was able to refinance twice since 2006 and am now paying $475 less every month compared to my original mortgage monthly payment. So refinancing can definitely help with your mortgage payments. Saving a few hundred dollars a month could mean the difference of saving your home.

You may be eligible for HARP if you meet all of the following criteria:

  • The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
  • The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
  • The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
  • The current loan-to-value (LTV) ratio must be greater than 80%.
  • The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.
  • Program ends December 31, 2013.

To find out if your home mortgage is backed by Freddie, you can visit www.freddiemac.com/mymortgage.
To find out if your home mortgage is backed by Fannie, you can visit www.fanniemae.com/loanlookup.

What If My Mortgage Isn’t Backed By Freddie Mac or Fannie Mae?
There’s not much you can do if you don’t qualify for refinancing under HARP. But that doesn’t mean that you shouldn’t do anything. You can call your mortgage lender and tell them your situation. By telling them that it’s hard for you to make payments, they may be able to do something for you. The last thing banks want is you to foreclose because they also don’t want to be stuck with the property with no money coming in. Another option, which is the last ultimate resort, is to stop making payments and end up foreclosing your home. It’ll be rough, but at the end, it could be your only solution. Until banks step up and start helping more homeowners who don’t qualify for HARP and other government assisted programs, there aren’t too many options available currently.

Have you or do you know anyone that have gone through a foreclosure? What was the experience yet? What have you learned?

photo: foreclosedhome, By Brendel via Wikimedia Commons

This post was featured at the Carnival of Personal Finance #348, The Grammy Awards Edition.

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{ 13 comments… read them below or add one }

Money Beagle February 9, 2012 at 8:43 AM

We re-financed last year with our current lender and since we didn’t have 20% equity in the house any longer (we did when we first moved in) I was afraid we would have to pay PMI, but we didn’t, and I’m thinking it was because we must have been part of the HARP program. In any case, we went from a 30-year 5.875% mortgage to a 15-year 3.375% mortgage, basically paying what we were per month previously, so it was a no-brainer for us.
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Charles February 9, 2012 at 10:53 AM

oh yeah, that’s a no brainer. you basically erased 15 years of mortgage payment by doing so! Way to go!

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Monica February 9, 2012 at 10:33 AM

Unfortunately, I have know many people who have been through foreclosure, and it was a difficult experience for them. A couple of our friends are struggling to make their payments and are very worried about losing their homes, so I will send them this article. If they don’t qualify for HARP, hopefully they can follow your tips to contact their lender to try and negotiate better terms.
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Charles February 9, 2012 at 10:52 AM

Hi Monica, it must be a difficult situation that your friends are going through. It’s never fun when there’s a good chance of losing your home. Hopefully some of these gov’t aided programs like HARP can bail them out. I wish your friends some good luck when calling their lenders.

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Sandy February 9, 2012 at 3:41 PM

Watching so many people go through foreclosure is heart breaking. If they can not qualify for this program, the best advice you can give is to communicate with the bank. Everyone is at a loss once the house is foreclosed (although one side loses a bit more than the other).
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Dr Dean February 11, 2012 at 7:44 AM

The real estate mess is continuing to be a tough fix. The government band aids may help, but a rebound in the jobs market will be a tremendous boost.

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funancials February 12, 2012 at 9:51 AM

Congrats on the $475 decrease in pmt. That’s huge. What are you using the extra cashflow for?
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Shaun @ Smart Family Finance February 12, 2012 at 3:21 PM

Congr ats on freeing up extra money each month.
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