HARP truths and myths

HARP Truths and Myths

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The HARP refinance program, otherwise known as theHome Affordable Refinance Program, has been aroundsince 2009, but has undergone many changes sincethen. Homeowners that were previously ineligible forthe program might find that they are eligible today dueto fewer restrictions and most importantly, a greaterallowed maximum loan-to-value ratio. Unfortunately,there are still many myths that surround this programstarted by the government, leaving thousands ofeligible homeowners stuck in their original mortgage,not able to take advantage of today’s low rates or ableto pay their loan balance down.



HARP Only Offers 30-Year Terms

Myth:



Many people think that the only term offered in theHARP program is a 30-year term, which many peoplethat have already paid into their loan for several yearsare not willing to go back to, adding time to their loan.The good news is that the HARP program encouragesborrowers to obtain a shorter term than their mortgagecarries right now. The reason is twofold. First, theinterest rate is typically lower on a shorter term loan,such as a 15-year or 20-year versus a 30-year term.Second, the loan is amortized faster, which means thatyou will pay the principal down faster, therefore payingyour loan off quicker.

Truth:



It is Expensive toRefinance with

HARP

Myth:



Just like any other loan, there are closing costs to refinancewith HARP. But the costs are not any different than youwould see on a typical refinance. You also have many ways topay the closing costs, allowing you to determine the bestmethod for your situation. Some borrowers pay the closingcosts out of pocket at the closing. This is done to avoid addingany more money to the loan amount, helping that borrowerlower their payment as much as possible. Other borrowersthat cannot afford to pay the closing costs up front canfinance them into their loan. This is not always as bad as itseems, especially if you are shortening your term; chancesare the payment will be lower than you were originallypaying even with a slightly higher loan amount.

Truth:



You are too FarUnderwater to

Qualify

Myth:



The HARP regulations changed in 2012, allowinghomeowners that were considered “very underwater” totake advantage of the program too. HARP 2.0 has madeit possible for any loan-to-value ratio to be eligible forthe program as long as the interest rate is fixed. Thismeans even if you have a 125 percent loan-to-value ratioon your home, you can refinance. On the other hand, ifyou are refinancing into an adjustable rate mortgage inorder to get your initial rate as low as possible, themaximum allowed LTV is 105 percent.

Truth:



Two Liens onthe Property

Disqualifies You

Myth:



If you have two liens on your property, you might beeligible for HARP. There are a few stipulations that youmust meet in order to be eligible though. Because thereis no maximum on the LTV that you can have, a secondlien does not limit you from taking advantage of HARP.What does matter is whether or not the servicer of yoursecond lien will agree to continue to remain in secondposition when you refinance. This is no different than aregular refinance, where the junior lien would need tosubordinate to the first mortgage. As long as you canmeet the requirements of the loan and show the abilityto make both payments, the second mortgage will notbe a factor.

Truth:



The desired goal for HARP is to allow allhomeowners that qualify to refinance their homeinto today’s lower rates and possibly even a lowerterm, regardless of the fact that they areunderwater. The best way to pay your loan off in thesame fashion that would have happened had thehousing crisis not occurred is to take advantage ofHARP and start paying money towards yourprincipal faster to get your LTV back to where itbelongs despite its lower value.



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C L I C K H E R E



Justin McHood is Americas MortgageCommentator and has been providing

Mortgage commentary for over 10 years.

INFORMATION PROVIDED BY: JUSTIN MCHOOD

MORTGAGE COMMENTATOR

Information Originally Published:January 12, 2015BLOWNMORTGAGE.COM


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HARP truths and myths