5 Reasons to (Re)Consider HARP Now [UPDATE]

May 12, 2015 | By

UPDATE: Originally slated to expire at the end of 2015, it was announced on May 8  that both the Home Affordable Modification Program [HAMP] and the Home Affordable Refinance Program [HARP] will be extended for an extra year, until the end of 2016.  

Federal Housing Finance Agency Director Melvin L. Watt said that since both programs were launched in 2009 they have provided “critically important relief for many borrowers by allowing them to lower their monthly payments and, as a result, have prevented many foreclosures.” 

Can HARP or HAMP help you? Read on to learn more.

The government’s Home Affordable Refinance Program or HARP was introduced in 2009, at the start of the housing crisis, to help homeowners refinance who were “underwater” on their mortgage — meaning they owed more than the home’s value.

“This program has always been intended as a way forward for people who are doing the right thing, who are paying their mortgage on time, to take advantage of lower interest rates,” explains Blake Hampton, Fannie Mae’s HARP program manager.

In fact, while over 3.2 million eligible homeowners have refinanced under HARP, there are many mortgage borrowers in the U.S. with rates of 4.5 percent or higher who could qualify for — and benefit from — refinancing their mortgages, according to Black Knight Financial Services, a mortgage analytics company.

The Federal Housing Finance Agency or FHFA, which administers the program, has published a map of HARP-eligible loans in each state and estimates that, on average, payments could be lowered on these loans by $200 a month, or $2,400 a year, with a HARP refinance.

Depending on an individual’s circumstances, the savings could be more: A borrower with a 30-year fixed-rate mortgage at 6.5 percent that refinances under HARP to a 4 percent loan could save more than $300 a month. A borrower currently paying 8 percent could save more than $500 a month.

Moving to a lower interest rate and saving money on your monthly mortgage payments is just one benefit, says Hampton. “You can also shorten your loan term (from 30 to 15 years, for example) or move to a more stable product, such as from an adjustable-interest-rate mortgage to a fixed-rate.”

According to the FHFA, borrowers most likely to benefit from HARP have a remaining balance of $50,000 or more on their mortgage, have more than 10 years of payments left, and have a mortgage interest rate at least 1.5 percent higher than current market rates. They must also meet basic HARP eligibility requirements, including that their mortgage is owned by Fannie Mae or Freddie Mac.

Still on the Sidelines?

With so much to gain, and little to lose, what’s holding people back? Since its inception, certain myths about HARP have kept some borrowers from taking advantage of the program. Here are the top five reasons on why it’s time to get off the sidelines, say experts.

1. HARP is not a scam. Unfortunately, we live in a world full of financial scams, and borrowers have become skeptical of offers to help them lower their mortgage payments, even from legitimate sources like their mortgage company. If you’re skeptical, visit HARP.gov to find a full list of approved lenders, or call your mortgage company to tell them you are interested in refinancing and want to see if you qualify for HARP, says Hampton.

2. Eligibility requirements have changed. HARP underwent significant changes in 2011, but the primary enhancement removed the limit on the amount that homeowners could be “underwater.” With that change, many homeowners who were not eligible may now qualify. Think you could be one of them? Try Fannie Mae’s 30-second quiz to find out.

3. You don’t need perfect credit. Many borrowers have heard horror stories from friends and neighbors who refinanced (or tried to refinance) in the past, sometimes into predatory loans. Others don’t believe they qualify. “Be sure you’re working with a legitimate lender who can help you understand the benefits in your situation and find out if you can qualify,” says Hampton.

4. The benefit is ongoing. HARP isn’t an “instant gratification” payout; the total savings build month after month, year after year. That can be a hard concept for some homeowners to value, according to a study from the University of Chicago and Brigham Young University. “Deciding to refinance is a complex decision,” University of Chicago professor Benjamin Keys, one of the authors of the study, told CNN. If you need help with the numbers, contact your mortgage company.

5. The program will expire December 31, 2015 [UPDATE: This deadline has been changed to December 31, 2016]

The Bottom Line

HARP is one of several refinancing options available to eligible homeowners. But HARP is unique — it’s the only widely available refinance program that enables eligible borrowers with little to no equity in their homes to take advantage of low interest rates and other refinancing benefits.

If you think you may be eligible for HARP, contact your lender or a lender participating in the HARP program to find out.

“The time to act is now,” says Hampton.

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