HARP loans: The life raft for underwater mortgages
For many Americans, their mortgage is the largest expense they have every month. Unfortunately, some homebuyers found themselves “underwater” on their mortgage during the Great Recession, meaning they owed more on their homes than those homes were worth. That’s where the Home Affordable Refinance Program (HARP) comes in. HARP loans have helped tens of thousands of homeowners refinance their homes and lower their monthly payments.
What is a HARP loan?
A HARP loan is a type of refinancing option that is available to borrowers with mortgages owned by Fannie Mae or Freddie Mac. The goal of HARP is to help homeowners who are “underwater” on their mortgages (meaning they owe more on their mortgage than the house is currently worth) refinance their loans and reduce their monthly payments.
The HARP loan program was launched in 2009 as part of the government’s response to the housing crisis. The program was designed to help homeowners avoid foreclosure and stay in their homes by offering them a way to refinance their mortgages at a lower interest rate.
Do I qualify for a HARP loan?
There are a few basic requirements you must meet to be eligible for a HARP loan:
- Your mortgage must be owned by either Fannie Mae or Freddie Mac
- Your mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009
- You must not have any late payments in the last six months, and no more than one late payment in the last 12 months
- Your home must be your primary residence, a second home, or an investment property with up to four units
- Your current loan-to-value (LTV) ratio must be greater than 80%
If you meet these eligibility requirements, you can apply for a HARP loan. It’s important to note that not all lenders offer HARP loans, so you’ll need to shop around to find a lender that does.
What are the benefits of a HARP loan?
A HARP loan offers several benefits to homeowners who are underwater on their mortgages:
- Lower monthly payments: By refinancing your mortgage at a lower interest rate, you can lower your monthly payment.
- Fixed interest rate: HARP loans offer fixed-interest rates, which means your interest rate won’t change over the life of the loan.
- No private mortgage insurance (PMI): If you’ve built up 20% equity in your home, you may be able to refinance your loan without the need for PMI.
- Streamlined application process: Since you’re refinancing your current mortgage, the application process for a HARP loan is typically faster and simpler than applying for a new mortgage.
What are the drawbacks of a HARP loan?
While a HARP loan offers many benefits, there are also a few drawbacks to consider:
- You may not qualify: If your mortgage isn’t owned by Fannie Mae or Freddie Mac, you won’t be eligible for a HARP loan. Additionally, if you’ve had more than one late payment in the last 12 months, you may not qualify.
- You may not save as much money as you’d like: Depending on the terms of your original mortgage, you may not be able to save as much money as you’d like by refinancing. Plus, you’ll need to pay closing costs on your HARP loan, which can add up.
- You may not be able to refinance again: HARP loans are only available to borrowers once, so if you’ve already used a HARP loan to refinance your mortgage, you won’t be able to do it again.
Should I consider a HARP loan?
If you’re underwater on your mortgage and looking to reduce your monthly payments, a HARP loan may be a good option for you. However, it’s important to consider all your options and speak with a qualified mortgage professional before making any decisions.
Ultimately, a HARP loan may not be the best choice for everyone. Depending on your financial situation, a traditional refinance, home equity loan, or home equity line of credit (HELOC) may be a better fit.
The bottom line
If you’re underwater on your mortgage and struggling to make your monthly payments, a HARP loan could be a lifesaver. By refinancing your mortgage at a lower interest rate, you could significantly reduce your monthly payment and stay in your home. Just be sure to qualify first and don't rush into any decisions. Consult with a qualified mortgage professional to find out which option is best you for.