The HARP® refinance program, otherwise known as the Home Affordable Refinance Program®, has been around since 2009, but has undergone many changes since then. Homeowners that were previously ineligible for the program might find that they are eligible today due to fewer restrictions and most importantly, a greater allowed maximum loan-to-value ratio. Unfortunately, there are still many myths that surround this program started by the government, leaving thousands of eligible homeowners stuck in their original mortgage, not able to take advantage of today’s low rates or able to pay their loan balance down.
Myth: HARP® Only Offers 30-Year Terms
Truth: Many people think that the only term offered in the HARP® program is a 30-year term, which many people that have already paid into their loan for several years are not willing to go back to, adding time to their loan. The good news is that the HARP® program encourages borrowers to obtain a shorter term than their mortgage carries right now. The reason is twofold. First, the interest rate is typically lower on a shorter term loan, such as a 15-year or 20-year versus a 30-year term. Second, the loan is amortized faster, which means that you will pay the principal down faster, therefore paying your loan off quicker.
Myth: It is Expensive to Refinance with HARP®
Truth: Just like any other loan, there are closing costs to refinance with HARP®. But the costs are not any different than you would see on a typical refinance. You also have many ways to pay the closing costs, allowing you to determine the best method for your situation. Some borrowers pay the closing costs out of pocket at the closing. This is done to avoid adding any more money to the loan amount, helping that borrower lower their payment as much as possible. Other borrowers that cannot afford to pay the closing costs up front can finance them into their loan. This is not always as bad as it seems, especially if you are shortening your term; chances are the payment will be lower than you were originally paying even with a slightly higher loan amount.
Myth: You are too Far Underwater to Qualify
Truth: The HARP® regulations changed in 2012, allowing homeowners that were considered “very underwater” to take advantage of the program too. HARP® 2.0 has made it possible for any loan-to-value ratio to be eligible for the program as long as the interest rate is fixed. This means even if you have a 125 percent loan-to-value ratio on your home, you can refinance. On the other hand, if you are refinancing into an adjustable rate mortgage in order to get your initial rate as low as possible, the maximum allowed LTV is 105 percent.
Myth: Two Liens on the Property Disqualifies You
Truth: If you have two liens on your property, you might be eligible for HARP®. There are a few stipulations that you must meet in order to be eligible though. Because there is no maximum on the LTV that you can have, a second lien does not limit you from taking advantage of HARP®. What does matter is whether or not the servicer of your second lien will agree to continue to remain in second position when you refinance. This is no different than a regular refinance, where the junior lien would need to subordinate to the first mortgage. As long as you can meet the requirements of the loan and show the ability to make both payments, the second mortgage will not be a factor.
The desired goal for HARP® is to allow all homeowners that qualify to refinance their home into today’s lower rates and possibly even a lower term, regardless of the fact that they are underwater. The best way to pay your loan off in the same fashion that would have happened had the housing crisis not occurred is to take advantage of HARP® and start paying money towards your principal faster to get your LTV back to where it belongs despite its lower value.Click to See the Latest Mortgage Rates»