After years of enduring depressing reports about home prices, underwater loans and ultra-low refinance interest rates that were beyond their reach, millions of homeowners are seeing their fortunes turn around. In fact, the wave of recent good news looks set to become a tsunami of even better tidings.
Could I... Should I Refinance?
Back in early February, we reported data that showed 1.4 million American homeowners seeing their loans going into "positive equity" (meaning their houses went from being worth less than the amount they owed on their mortgages to more) during the 12 months ending in the third quarter of 2012.
Now we can see that trend continuing. On May 6, Lender Processing Services published its March Mortgage Monitor, and this revealed that the number of mortgages in negative equity that month was 41 percent lower than during the same time in 2012. That still leaves 9 million underwater loans, but, if things carry on as they have been doing, that number could be set to fall very quickly.
And there are signs that they may well carry on. In its April MarketPulse Report, CoreLogic disclosed that, nationwide, home prices were a whopping 10.2 percent higher in February 2013 than February 2012. Just as encouragingly, the number of seriously delinquent mortgages was tumbling, while the inventory of foreclosed homes was falling, also at a significant rate. That means the drag on house prices caused by having lots of cheap foreclosed homes on the market is currently diminishing month after month.
Still Nudging the Best Refinance Rates in History
So, at the same time millions of homeowners are finding they have positive equity, they're also being offered exceptional refinancing deals. Under the headline, "Mortgage Rates Keep Pushing Lower," Freddie Mac recently unveiled average mortgage rates for weekending May 2. At 3.35 percent (with a 0.7 point) for a 30-year, fixed-rate mortgage (FRM) that was extraordinarily close to the all-time record low, which is 3.31 percent, set in November 2012.
Anyone who's considering refinancing should at least explore the option of choosing a shorter term for his or her new mortgage. It can be tough, because monthly payments are likely to be higher, but the savings in interest over the lifetime of the loan (check out what they could be for you using a loan refinance calculator) can be truly phenomenal. And the news from Freddie Mac was even better for those lucky enough to afford those payments: that week, the 15-year FRM rate actually set a new all-time record... an average of just 2.56 percent, with a 0.7 point.
Can I Refinance My Mortgage with Negative Equity?
All this may bring a smile to the faces of homeowners with positive equity, but lead to a gritting of teeth among those whose loans are still underwater. But don't despair if you're in the latter group.
On April 11, the Federal Housing Finance Agency (FHFA) announced that its Home Affordable Refinance Program (HARP) is to be extended. In a press release, the agency explained the program's purpose: "HARP is uniquely designed to allow borrowers who owe more than their home is worth the opportunity to refinance their mortgage." The program was due to close at the end of this year, but is now set to run through Dec. 31, 2015.
Not Everyone Can Play the HARP
There are a number of criteria that have to be met before you can qualify for a HARP refinancing, including:
- Your existing loan must be guaranteed (or owned) by either Freddie Mac or Fannie Mae. Many borrowers don't know whether their mortgage falls into this category, so you can check here for Fannie and here for Freddie.
- Either Freddie or Fannie must have acquired the loan on or before May 31, 2009.
- You can't re-refinance under HARP unless your first refinance was with Fannie during the period March-May, 2009.
- The current market value of your home must be at least 80 percent of the amount you currently owe on your mortgage.
- You must be current on your mortgage payments, and mustn't have been late with a payment more than once in the previous year. That late payment, if any, can't have occurred in the previous six months.
With HARP, you don't have to refinance with your existing lender, and you can ask LendingTree to introduce you to other mortgage providers who might offer a better deal.
Look for More than Just the Best Refinance Rates
And deals do vary a lot. Of course, your first priority should be to find the best refinance rates, but don't forget also to keep an eye on your lender's charges.
Closing costs vary enormously, and can significantly affect the attractiveness of a deal. Again, you can use a loan refinance calculator to model different closing costs with different refinance rates. And remember: many lender fees are up for negotiation, so haggle hard.
Most importantly, don't let inertia stop you taking advantage of refinance rates that some regard as a one-in-a-lifetime opportunity. Yes, refinancing can be a hassle. But, for many, its financial rewards should be irresistible.