The Home Affordable Refinance Program, also known as HARP, is an opportunity to help some homeowners refinance their loans into more affordable options. Individuals who may not have much equity in their home, but want to secure a lower interest rate on their existing loan will benefit the most from HARP. But, it is important to know how it works and what it can offer to you.
How Does the Home Affordable Refinance Program Work?
Individuals who want to refinance their home loan may find it hard to do so if they do not have any equity in the home. Equity is the value of the home not under a mortgage loan. For example, if your home is worth $200,000 and you owe $150,000, there is $50,000 worth of equity present.
Many homeowners do not have much equity built up. This is due to various factors, but commonly due to the value of homes falling in some areas significantly over the last few years. After the mortgage and banking crisis in 2008, home values fell significantly, creating a situation in which property owners owned more on their loans than the homes were worth. Over time, interest rates have fallen, and, in some areas, home values are up. For those who wish to take advantage of lower interest rates, this is one way to do so.
In short, the Home Affordable Refinance Program is one of the only refinance programs that allows a person to obtain a new loan without any equity in the home with the goal of obtaining a lower interest rate. It’s important to know that HARP is changing. You have until December 31, 2018, to take advantage of it. The program is scheduled to end at that time.
Who Qualifies for this Program?
The Home Affordable program is accessible to many people. In general, you may be able to obtain this loan refinance offer in the following situations:
- You have made payments on your home for the last 12 months. In short, you cannot have late payments in the last six months and no more than one late payment (30 days or more late) in the last 12 months.
- Your loan must be owned by Freddie Mac or Fannie Mae. You are able to look up this information using the Fannie Mae website. Many loans are owned or guaranteed by this organization, even if you have another loan servicer (the company you pay to).
- You live in your home as a primary residence. Some investment properties and second homes will qualify, too.
- Over the last few years, your home value has fallen.
- You have a limited amount of equity available. In some cases, you can use HARP if your home’s first mortgage is more than what the current value of your home is.
- You obtained your loan on or before May 31, 2009.
If you meet these criteria, you may qualify for the HARP program. But, should you use it?
Who Benefits from the Home Affordable Refinance Plan?
The home affordable refinance plan can benefit many people. If you own a home right now and you are paying too much in interest, it is worth taking a closer look at how this loan can help you. It is always possible to obtain a quote to compare your options. Specifically, some people will qualify for HARP and benefit from it for these reasons:
- You want to lower your monthly payment. If you can qualify for a lower interest rate, this could reduce your monthly payments significantly.
- You want to reduce your existing interest rate. A lower rate can reduce the overall cost you pay for the home over the lifetime of it.
- You currently have an adjustable rate mortgage (ARM) and want to secure a fixed rate mortgage. A fixed rate ensures the monthly payments remain the same throughout the life of the loan.
- You want to shorten the repayment period. This could help you save money in the long term and help you to build equity in your home faster.
- You want an easier option for refinancing – HARP does not always require an appraisal of your home.
In some situations, the HARP opportunity is the ideal way to secure a significantly lower interest rate and better terms. Even if you think you do not qualify due to the value of your home, talk to your lender about it. In many situations, this program can help you reduce what you are already paying without extending the length of the loan and with low closing costs.
Individuals can work with their lenders to determine if they qualify for this refinance offer. You can refinance with any lender approved by Fannie Mae and Freddie Mac to provide loans – you do not need to stay with an existing lender to do so.