A Home Affordable Refinance Program (HARP) loan could be a great option if you are like millions of Americans that have seen their home values decrease over recent years. Especially if you are underwater (owe more than the value) on your loan at this point. A HARP mortgage allows homeowners to still take advantage of today’s low rates, often times, in spite of their equity position. There are, however, a couple of unique requirements that must be met:
- Your mortgage must currently be held by Fannie Mae or Freddie Mac. Please bear in mind, you may make your monthly payments to a particular bank, but Fannie Mae or Freddie Mac may still hold your loan. You can quickly verify if Freddie Mac or Fannie Mae owns your loan.
- Your home is your primary residence, a single-unit second home, or a one to four-unit investment property.
- Your loan-to-value ratio is more than 80 percent.
- You acquired (i.e. closed) your current mortgage prior to May 31, 2009.
- You cannot have any 30-day late payments in the last 12 months.
Assuming you meet those five basic requirements, you may be able to lower your rate and save some money without having to wait for property values to fully rebound. Please note, additional underwriting guidelines may apply.
Calculating your loan-to-value ratio
To calculate the loan-to-value ratio, take the amount you owe on your home and divide by the value of your home. For instance, if you owe $80,000 and your home is worth $100,000, you have an 80 percent ratio. To give an example of what your loan-to-value ratio might look like if your mortgage is underwater, imagine that your home is appraised at $200,000 but you owe $240,000 on your mortgage. In this situation, your loan-to-value ratio is 120 percent. That is also over the 80 percent threshold so you can still apply for a HARP loan.
Potential changes with a HARP mortgage
If you get approved for a HARP mortgage, you can get your interest rate lowered. You may also be able to get a shorter term on your loan or switch from an adjustable to a fixed-rate mortgage. All of these changes help you in a variety of different ways.
Lower interest rates with a HARP mortgage
When you get a lower interest rate, that directly lowers your monthly payments. For example, imagine your mortgage is for $200,000 and you have a 5 percent interest rate. In this scenario, your annual interest is $10,000. However, if you get a loan that lowers your interest rate to 4 percent, your annual interest falls to only $8,000. That difference ultimately leads to lower monthly payments.
Shorter term with a HARP mortgage
A shorter term doesn’t lower your monthly payments, but it allows you to pay off your mortgage faster. For instance, if you currently have 25 years left on a 30-year mortgage, you could use the HARP program to switch to a 15-year term. Then, you pay off your home 10 years sooner.
Changing to a fixed interest rate with a HARP mortgage
One of the other changes you can get with a HARP mortgage is to switch from a variable interest rate to a fixed interest rate. A variable rate changes periodically, and that can make your payments unpredictable. When you switch to a fixed rate, you get to enjoy the same monthly payments every month for the lifetime of your loan.
If you would like to explore a HARP mortgage or other mortgage products available from Capital Mortgage Advisors, please call us at 800-859-5648, or complete our simple form below. One of our experienced mortgage specialists will contact you.