In late August, the Federal Housing Finance Agency (FHFA) announced an extension of the Home Affordable Refinance Program (HARP). This program allows borrowers with mortgages backed by Fannie Mae or Freddie Mac to refinance even if they have little or no equity in their homes.
Further, the FHFA announced plans for a successor program that will continue to make it easier for people with low-equity mortgages to refinance even after the scheduled expiration of the HARP program as of September 30, 2017.
Since the government has been kind enough to buy some more time for homeowners with underwater or low-equity mortgages to refinance, why should those borrowers be in any hurry? Well, despite the plans to extend HARP and then replace it with a successor program, putting off refinancing your mortgage when you have the chance can be very costly.
HARP was created to get home owners over a significant obstacle to refinancing that resulted from the housing crisis: despite a steep drop in interest rates, people who had seen the value of their homes drop below the amount still owed on their mortgages would not typically be able to refinance because lenders require some cushion of equity in a home.
However, for loans that were already backed by Fannie Mae and Freddie Mac, refinancing those same loans did not represent any additional risk to those finance organizations. Indeed, facilitating refinancing was considered to be a way of reducing the exposure of those organizations to default risk by making it easier for borrowers to repay their loans.
HARP has proven very popular. According to the FHFA, some 3.4 million homeowners have taken advantage of the program. Because of its popularity, HARP has been given a series of extensions, with the latest one pushing the deadline out to September 30, 2017. This is designed to accommodate an estimated 300,000 homeowners who could potentially benefit from the program but have not yet applied.
Despite Extension, Now's the Time to Refinance
The extension of the HARP deadline is helpful, but it does not guarantee that the refinancing window will continue to be as wide open as it is currently. Here are three reasons not to delay refinancing even if the HARP extension buys you more time:
- Low mortgage rates are not guaranteed to continue. HARP is designed to allow homeowners with little or no equity to take advantage of low interest rates, but without those low rates the opportunity would disappear. A number of highly unusual factors have contributed to record low mortgage rates in recent years, but these conditions could change at any time.
- A new administration may have different plans. There is no escaping the fact that we are in an election year, with a new President scheduled to take over next January. A new White House administration could bring new leadership at the FHFA, and/or a different attitude towards the HARP program.
- Every month of delay is money out the window. Even if mortgage rates remain low and HARP remains in place, putting off refinancing could still cost you. Every loan payment you make at a higher interest rate than you could get by refinancing is extra money you are sending to the mortgage company unnecessarily. That's nice for the mortgage company, but for you it is just wasted money.
Think back to the statistics on HARP participation. Over 3.4 million homeowners have already taken advantage of the program, compared with about 300,000 who could be eligible but have not applied. In other words, over 90 percent of those who are in a position to benefit from HARP already have, so if you too could be eligible, why would you wait any longer to join the party?