Is your house underwater? Did it lose value during the last recession? Could you use a few extra thousand dollars next year?
If you said “yes” to one or more of these questions, then you probably haven’t taken advantage of the Home Affordable Refinance Program (HARP). The federal government launched HARP in 2009 to help eligible homeowners with mortgages owned by Freddie Mac or Fannie Mae save money by refinancing into low-interest loans despite a drop in the value of their home.
As of August 2013, HARP has saved approximately 2.9 million homeowners as much as $12 billion a year on their mortgage interest payments. It’s estimated that new HARP borrowers who refinanced into Freddie Mac mortgages during the first nine months of 2013 reduced their mortgage interest rates an average of 2 full percentage points, from about 6.1 percent to 4.0 percent. (In some states, such as Texas, the average HARP borrower’s interest rate fell by 2.7 percentage points.)
HARP borrowers average $4,300 in annual savings
As a result, Freddie Mac estimates the average homeowner will save $358 a month — $4,300 in the first year — after refinancing through HARP. Other analysts put annual HARP savings for borrowers anywhere from $1,200 to as much as $6,000. (If approved, your specific savings will depend upon the terms — duration, interest rate — of your new HARP loan compared with your current loan.)
There are two ways HARP can help you save money.
First, you can use HARP to lower your interest rate on a loan with the same maturity, say 30 years. Or you can refinance a long-term, fixed-rate mortgage, or a loan with a variable rate, into a fixed-rate loan with a shorter term, such as 15 years. A shorter term coupled with a lower interest rate could help you increase equity faster and save a considerable amount of interest over the life of your loan.
Either way, the extra cash you may save through HARP can put you in better position to pay down debts, build up your savings and free up cash for new purchases.
HARP changes aim to help more underwater borrowers
Despite HARP’s saving potential, it’s estimated that as many as 1 million to 2 million potentially eligible borrowers with Freddie Mac or Fannie Mae loans could save money through HARP, but have yet to apply for a HARP loan. Specifically, if these homeowners had refinanced at the October average mortgage rate for a 30-year, fixed-rate loan of 4.2 percent they could have reduced their principal and interest payments by at least 10 percent.
So why haven’t these potentially eligible borrowers applied? Some recent online surveys indicate many borrowers are still unaware of HARP. One from loanDepot.com suggests borrowers who didn’t qualify when HARP was first announced are unaware that HARP was significantly enhanced to expand eligibility to more borrowers, especially in markets where home prices fell sharply during the recession.
For example, today HARP has no loan-to-value limits under Freddie Mac and Fannie Mae rules. This gives lenders more leeway to adjust their own rules to help more borrowers qualify for HARP. So, even if your home’s value is a fraction of the size of your current mortgage or you owe more on your home than it is worth – you may be eligible under the expanded rules.
Which brings up one last question for homeowners who haven’t applied for HARP: What are you waiting for? Get started now by calling your mortgage servicer, or visiting HARP.gov, and find out how HARP may benefit you.