The New York Times ran a story recently about the federal government's Home Affordable Refinance Program, (HARP) program. This is the initiative that allows many people to refinance their mortgages even if their current balance exceeds their home's value. As of November 2014, HARP has helped 3.26 million homeowners who are either in that position or whose loans are only just above water: who have too little "equity" (the amount by which the home is worth more than the mortgage balance) to qualify for a mainstream refinancing deal.
That Times story contained three disturbing assertions:
- HARP is currently scheduled to close at the end of 2016.
- As many as 700,000 eligible homeowners have yet to undertake a HARP refinance.
- One of the reasons so many have not is that the program sounds too good to be true, so some homeowners assume it's a con.
That last one is especially depressing: we live in a society with so many lying, cheating sharks trying to chow down on our wallets that we assume even genuine, useful programs are out to trick us. Like all major financial transactions, a HARP refinance should be approached with care, but it's certainly no scam.
Another factor that might discourage homeowners from applying is that HARP eligibility rules have evolved since it was introduced in 2009. This applies in particular to loan-to-value ratios, or LTVs. Your LTV equals the loan amount divided by the property value. If, for example, your loan amount is $120,000 and your home is worth $100,000, the LTV is 120k / 100k, or 120 percent.
In 2009, the program could only be used for LTVs of 105 percent or lower it was later increased to 125 percent and eventually the limit was removed completely. So, as The Times explains, homeowners who were once turned down for a HARP refinance may now qualify for one. In November 2014, nine percent of the loans refinanced through HARP had LTVs of 125 percent or more, according to the Federal Housing Finance Agency.
Another stumbling block for applicants is that only loans owned or backed by Fannie Mae or Freddie Mac can be refinanced under the program. The problem here is that many homeowners don't know if one of those organizations backs their mortgage. It's easy to find out, however. Just visit Fannie's website and Freddie's website where there are online services that allow you to check.
The advantage of a HARP refinance is that it should reduce your interest rate and / or your monthly mortgage payments. So the longer you put off applying, the longer you carry on paying unnecessarily high amounts. But there are other reasons why applying now might be smart.
First, at the time of writing, the program is due to close at the end of 2016. You could wait until the last minute, but what's the point? By year-end, every other procrastinator is likely to be trying to squeak in, and your application might not make it.
Secondly, current mortgage rates are exceptionally low, and a delay could see you getting a worse deal. Yes, it's possible that rates could drop even more, but most forecasters expect rates to end the year at higher levels.
At the end of January 2015, Freddie Mac reported that the average fixed rate mortgage (FRM) was 3.66 percent. That's the lowest they've been since May 2013, and they closed that year at 4.46 percent. One thing's for sure: anyone refinancing now stands to secure a mortgage rate that's exceptionally low by historical standards.
No wonder that during the same week it ran the HARP story, The New York Times also published an article under the headline "It's Time to Think about Refinancing Your Mortgage."