Wednesday, June 20, 2012

Smart Refinancing Strategy

For the most part, debt is dumb. But for homeowners with existing mortgages, there are ways to borrow smart.

One smart borrowing tactic – especially for underwater homeowners – is by refinancing under the Home Affordable Refinance Program (“HARP”), the Obama Administration’s initiative to stabilize the housing market and help homeowners get into more affordable mortgages. And while the government’s initial HARP effort in 2009 was somewhat of a dud, the revamped program is giving hope to many homeowners.

In order to qualify for the new and improved HARP program, borrowers must meet the following basic criteria:

  • The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae (make sure to check both sites as they are not one and the same).
  • The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009
  • Except for Fannie Mae loans that were HARP-refinanced between March and May of 2009, the mortgage cannot have been previously refinanced under HARP.
  • The current loan-to-value (LTV) ratio must be greater than 80%
  • The mortgage must not be in arrears at the time of the refinance.
  • Borrowers must not have had any late payments within the past six months, and you must not have had more than one late payment in the past 12 months.

  • Keep in mind that the foregoing criteria are just pre-qualifiers. You’ll need to contact your lender (which, in most cases, is simply the loan servicer) to determine whether you meet their other requirements as different banks use different loan variations. If you don’t qualify under your lender’s requirements, you aren’t precluded from checking to see if you qualify under another participating HARP lender’s program. And you should definitely shop around to see which lender will offer you the most competitive rate.

    The HARP is also encouraging borrowers to consider shortening the terms of their mortgage. Doing so would decrease the length of time it takes to pay down the loan balance and the borrower would receive a lower interest rate than traditional 30-year mortgages. If your circumstances allow, you will likely benefit from a HARP refinance with a 20-year or 15-year mortgage, and we believe this option is certainly worth looking into.

    Refinancing under the HARP could allow you to take advantage of today’s extraordinarily low interest rates and save you a significant amount of money. There are certainly other refinancing options available, but if you have no or very little equity in your home, this is a smart borrowing method worth exploring.

    Best regards,
    Rollins Financial, Inc.

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