The Home Affordable Refinance Program, popularly known as HARP, has helped millions of American homeowners refinance their homes even if they have little or no equity built up. There are still some homeowners that could benefit from the program before it expires on September 30 of 2017, but if you plan on beating that deadline you need to consider HARP insurance implications if you are currently paying private mortgage insurance (PMI).
While HARP insurance treatment shouldn't raise your monthly PMI payments, it could force you to make those payments for a longer period of time. The following are answers to some frequently-asked questions about how HARP might affect your mortgage insurance.
What Happens to My PMI If I Refinance with HARP?
HARP requires that you obtain mortgage insurance on your new loan if you are currently paying it on your existing loan. So, when you start shopping for a HARP refinance lender, focus on lenders that can arrange for mortgage insurance.
If I Pay for PMI Now, Will My Payments Go Up If I Refinance with HARP?
No. HARP simply requires that the current level of PMI be maintained, so refinancing should not increase your insurance premiums. However, as will be explained below, refinancing through HARP could increase the total amount of insurance payments you have to make over the life of the loan by extending the time for which you have to continue to make those payments.
If I Don't Pay PMI Now, Will I Have To Pay It If I Refinance Through HARP?
Probably not. If your current mortgage does not have PMI, you should not have to obtain it if you refinance through HARP. The one catch may be if you have lender-financed PMI. This means that you have mortgage insurance, but your lender rather than you are paying for it (usually in exchange for a higher interest rate on the loan). This means that you will have to obtain PMI on your new loan, even though you are not currently paying for it.
If you have lender-financed PMI, be prepared for the fact that you might not necessarily be able to get the same arrangement when you refinance. So, you might have to start paying for the PMI yourself. When comparing rates to measure the benefit of refinancing, be sure to account for both the interest and the insurance payments in order to fully assess the before-and-after effect that refinancing would have.
Will Refinancing Through HARP Delay the Cancellation of PMI Payments?
This may be the case. The key is that cancellation of PMI payments is tied to the loan-to-value ratio of your mortgage - the amount you still owe on the loan as a percentage of the value of your home. Normally, as you pay down a mortgage, the loan-to-value ratio declines. However, if you refinance a house that has dropped in value since your original mortgage, even if your new loan amount is the same as what you owed on the old mortgage, the loan-to-value ratio would rise because that loan amount would be a bigger percentage of the home's current value.
This is an important detail for HARP refinancing, since many people have been attracted to the program because it allows them to refinance even if their home has dropped in value. That drop in value may prolong the period for which you have to make PMI payments. That's why it is important to compare the total cost of refinancing - including those payments - and not just interest rates.
My Bank Says I Cannot Refinance Through HARP If I Have PMI Payments. Is This True?
No, this is not true. It was true of an earlier version of HARP, but this was changed years ago.
If this is the answer you get from your bank, start looking elsewhere for a loan. There's no point in arguing with the bank - you would probably be better off looking for a lender that is more receptive to HARP refinancing, even with PMI payments.
HARP insurance implications add a little wrinkle to refinancing, but in most cases, this should not be insurmountable. If you are currently paying for PMI, look for a lender who can arrange for this insurance on a refinanced loan and compare the total cost of refinancing, including both interest and PMI, before making a decision.
Just be sure to make that decision soon - remember, HARP is slated to expire on September 30, 2017.