Making the decision to refinance under HARP® can be a difficult decision if you are solely faced with the opportunity to obtain a new 30-year loan. Not everyone wants to start over from scratch, so to speak, after making years of timely mortgage payments. When you are underwater, however, and want to refinance, you can feel like your hands are tied. One option that many homeowners are enjoying is the loan with a 15-year term via HARP®. There are many benefits to obtaining this type of loan, even if you are a bit apprehensive about taking such a short term.
Save Money in Interest
Perhaps the largest benefit on any loan, when you are comparing the 30-year term to the 15-year term is the amount of money that you will save on interest. In the beginning, the 30-year loan is mostly focused on paying interest; a very small fraction of your payments hit the principal amount. A 15-year mortgage, on the other hand, hits the principal much harder and requires you to pay much less in interest payments. This means that over the life of the loan, not only are you saving on 15-years of interest due to the shorter term, but you are saving additional money every month on the amount of interest charged in each payment, because as your balance goes down, so does the amount of interest that you owe. For many homeowners, this could mean a difference of $50,000 to $100,000 over the life of the loan, depending on the loan amount.
Lower Interest Rate
A 15-year loan term almost always has a lower interest rate than the 30-year term A 15-year loan term almost always has a lower interest rate than the because of the decreased risk involved for the bank. This is especially true for HARP®; homeowners have been able to secure extremely low interest rates as a result of choosing the shorter term. This allows you to pay off your mortgage faster than you ever dreamed possible. In the end, you win because you will gain the equity in your home back much faster as a result of hitting the principal amount of your loan much harder than any other loan.
Any borrower that takes a HARP® loan that originally put 20 percent down on their home when they purchased it is given the benefit of not needing PMI, regardless of the current value and loan-to-value ratio. This is an incredible benefit for homeowners that are now underwater or close to underwater, yet want to refinance. You will not have the added expense of private mortgage insurance – this means that you can throw even more money towards the principal, helping you to reach financial freedom much sooner.
2nd Mortgages are Allowed with HARP®
Many people mistakenly think that HARP® does not allow 2nd mortgages. They do allow them, with some requirements. On the 15-year loan, homeowners are given a maximum combined loan to value ratio, or CLTV, of 105 percent. If your home is not underwater and you have a 2nd mortgage, you might be eligible for the 15-year loan with the 2nd mortgage remaining a subordinate loan. Your lender will be able to tell you if you are able be approved for the refinance the way that you wish to do it. If your CLTV is higher than 105 percent, you might have to look at a 30-year term. If this is the case, you can still make the 15-year payments on your mortgage, paying your balance down much faster than regular 30-year payments would allow.
In the end, you will own your home much faster with the 15-year term offered by HARP®. It is worth talking to your lender about your eligibility for this program, allowing you to see what the payment would be and how it would work within your budget. HARP® is meant to help those homeowners that are underwater and want to gain equity in their home once again. The 15-year term is the best way to reach this goal, enabling you to enjoy home ownership once again.Click to See the Latest Mortgage Rates»