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Mortgage Refinance: Play the HARP while it lasts

Posted In:  mortgage

Mark Twain once wrote, “A banker is a fellow who lends you his umbrella when the sun is shining, and wants it back the minute it begins to rain.” In terms of a modern day interpretation, if you’ve been thinking of refinancing your mortgage, you might want to step it up because rain is in the forecast.

Beginning December 11, 2009, Fannie Mae will no longer buy a loan with a credit score of less than 620, so lenders are no not likely to underwrite them. The company also plans to increase fees and raise lending criteria, making it more difficult than ever to finance, or refinance, a home purchase.


However, another good reason to refinance now is because rates are still quite low. Debbie Giambanco, a mortgage loan consultant in Richmond, Virginia, advised that, while there are all types of scenarios, locking in a rate 1.5 percent or lower than your current rate typically makes the most sense.

“But it’s what you do with the cash flow that will make the difference,” Giambanco explained. “Paying off higher monthly payment loans with the savings per month, or adding those savings to your new monthly mortgage payment will help reduce the number of years off of the life of the loan.”

Pay More To Reduce Interest

In fact, one extra payment per year usually knocks off seven years on a 30-year mortgage. Alternatively, you can divide your monthly mortgage by 12, and add that amount to your payment each month. For example, if your mortgage is $1,200 a month, add an extra $100 to your payment each month and instruct your lender to apply the excess to your principal.

If you can’t swing the extra payout, consider a bi-weekly payment program that basically splits your mortgage into two separate payments instead of one big one. In theory, each payment is applied to your mortgage when received, thus reducing the proportionate amount of interest charged until the next payment. 

In reality, many of these programs simply hold the two payments in escrow and then apply them before the monthly due date. This might be helpful for you in terms of monthly budgeting, but doesn’t have as great an impact in reducing the interest you pay.

When refinancing, seek out a lender offering a true biweekly payment program that applies each payment to the mortgage when received. A bi-weekly payment plan can shave more than $60,000 in the interest you pay on a 5 percent fixed rate, $250,000 mortgage over 30 years. 

Home Affordable Refinance Program (HARP)

The Obama Administration has put a program in place to help homeowners refinance for a more affordable mortgage.

President Obama talks about mortgage refinance programs on YouTube:

 To qualify for refinancing under the program, your current mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac. Three out of every four homeowners have these mortgages, so even if you don’t know who exactly owns your mortgage, there’s a good chance you qualify.

You must be current on your mortgage payments when you apply, meaning that you’ve not been more than 30 days late on your mortgage payment in the past year. You must be able to prove a reasonable ability to make the new mortgage payments (translation: someone in the house needs to have a decent-paying job), and the refinance must be viewed as improving “the long term affordability or stability of your loan.”

Last summer, the program was amended to include homeowners whose primary mortgage was as much as 125 percent under water, to help people in areas where property values have dropped considerably.

To help further save money, you may be eligible to finance some or all closing costs and receive up to $250 in cash back if you have sufficient equity.

However, if you are currently delinquent on your mortgage payments or have been 30 days overdue more than once in the past year, you’re not likely to qualify for HARP.

To apply, contact your mortgage lender and ask for a Home Affordable Refinance application, or apply through a lender approved to do business with Fannie Mae or Freddie Mac (which includes most major banks and mortgage brokers). The program expires on June 10, 2010.

So to recap, here are a few ideas to help save money on a refinance:


  •     If you’re considering refinancing, act now before lending standards become more stringent
  •     Take advantage of current low rates for increased cash flow
  •     Make one extra mortgage payment a year, or
  •     Add 1/12th of your monthly mortgage to each of your payments throughout the year
  •     Refinance with a lender that offers a biweekly payment program applying each loan payment upon receipt
  •     Apply for a HARP refinance to decrease your interest rate and monthly payments
  •     Fold closing costs into the refinance mortgage and maybe even get a little cash back



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