Homeowners who owe more on their home loan than their home is worth — also called being underwater in a loan — have a refinancing option that won’t be around for much longer.
HARP expires at the end of 2016, when thousands of underwater and low-equity homeowners may find it more difficult to refinance their home loans. The program is run by the Federal Housing Finance Agency, or FHFA, and is meant to help struggling homeowners refinance their mortgages at lower interest rates so they can keep their homes.
HARP was launched in 2009 as home values dropped and more homeowners went underwater. The program was started to fend off calls for principal forgiveness on Fannie Mae and Freddie Mac loans.
Who qualifies for HARP
To qualify for HARP refinancing, homeowners must meet several criteria:
- Existing loans are backed by Fannie Mae or Freddie Mac.
- Homeowners aren’t late on mortgage payments: no delinquencies in the past six months and up to one delinquency in the past year.
- They can’t refinance otherwise because of home depreciation.
- Conventional loans originated before June 1, 2009.
- Unpaid principal balance is greater than 80 percent of the current property value.
- Remaining balance greater than $50,000.
- Remaining term greater than 10 years.
- Note rate 1.5 percent above the market rate.
The ideal HARP candidate can’t refinance their home loan elsewhere because they’re underwater and has a loan-to-value ratio of 90 percent or more, says Casey Fleming, a mortgage advisor and author of “The Loan Guide: How to Get the Best Possible Mortgage."
“The idea behind HARP loans is that although you might not otherwise qualify for a refinance,” Fleming says, “if you’ve proven that you are willing and able to pay your existing mortgage — by virtue of having made payments on time for at least the last year — then you will certainly find a way to pay for the same mortgage at a lower interest rate and payment.”
How much can you save?
Dropping the interest rate on the loan for a lower monthly mortgage payment is one way HARP makes refinancing cheaper. Borrowers can also refinance to a shorter loan term.
The typical HARP homeowner saves 27 percent per month, according to a coalition of HARP banking servicers.
The mortgage savings through HARP can be as much as $2,400 a year, according to the FHFA, which is Further information:
- Mortgage refinance FAQ
- Mortgage refinance
- Fannie Mae
- FHA Streamline Refinance
- VA Loans
- Jumbo Loans
- Documents you need for a mortgage refinance