How HARP Could Make Your Home More Affordable
by Shawn Carvin, Senior Mortgage Banker
HARP, the Home Affordable Refinance Program, was started in 2009 to help homeowners refinance their mortgages in situations where the value of their homes had decreased so much that there was little to no equity available. Even if the value of the home was lower than the balance due on the mortgage – aka “upside down” – HARP allowed homeowners with mortgages backed by Fannie Mae and Freddie Mac to refinance at a lower interest rate and lower monthly payment. In 2011, the program was amended to allow homeowners with loan balances that were more than 25% over the home value to refinance as well.
Does HARP save you money?
It might seem like starting the clock over on a new 30-year mortgage may cost the homeowner more that keeping their current loan. However, the numbers don’t necessarily support that. If someone closed on a $650,000 mortgage with a $35,000 down payment at a 6.5% fixed interest rate in May 2008, the monthly payments would be just over $4,100, and the total interest payments over the lifetime of that loan would be just over $829,000 (assuming all payments were made on time with no additional balance payments.) If the value of that home was $565,000 as of July 2016, the homeowner would be “upside down” on the loan because the outstanding balance on 7/1/2016 would be just over $573,000 and the interest paid to date would be just over $330,000.
If the homeowner refinanced this home under the HARP program with a 4.5% fixed interest rate, the new payments would be just over $2,900 per month, a monthly savings of approximately $1,200. Furthermore, the interest payments over the life of this loan would be just over $472,000. When added to the interest paid on the previous loan, the total would be just over $802,000 in interest, a savings of approximately $27,000. Additionally, putting as little as $300 from the monthly savings towards the principal will take more than five years off the life of the loan and result in additional interest savings of over $90,000.
How to qualify for HARP
The original mortgage must be backed by Fannie Mae or Freddie Mac. The borrower must have a year’s worth of good payment history and must have closed on the loan before May 31, 2009. The home must have decreased in value, and borrowers may still qualify in the event their income has been reduced. Even if borrowers have been denied previously, it’s a good idea to talk to a a mortgage professional about refinancing with a HARP loan. Refinancing through HARP can save money on both a monthly basis and over the lifetime of the loan.
The HARP program is currently open until December 31, 2016.