Homeowners who want to refinance their mortgage to take advantage of today's record-low interest rates may have stumbled across the term "HARP." But what is it? The acronym stands for the Home Affordable Refinance Program, and it can be a lifesaver for people whose home value has dropped since they bought.
This government initiative was set up by the Federal Housing Finance Agency in March 2009 to help homeowners in the wake of the housing crash who ended up underwater or near underwater on their mortgages -- meaning they owed more on their home loan than it was worth. For instance, let's say you borrowed $250,000 to buy your home in 2007 at the top of the market, but since then its value has dipped to $210,000. This means you're $40,000 underwater.
Why does this matter? Because if you're hoping to refinance to a lower interest rate to pay less on your monthly mortgage, lenders are reluctant to refinance underwater loans. Or, if they do, you won't get the best interest rate or must pay private mortgage insurance, which can cancel out any potential savings.
How HARP can help
Since 2009, HARP has helped more than 3.4 million homeowners refinance who would have had a hard time doing so otherwise. On average, these homeowners saved about $3,500 per year on their mortgage payments, according to a study by the Columbia Business School and the University of Chicago.
Experts say HARP could help many more homeowners, if only they knew they qualified and applied to the program. Here are the main criteria you must meet:
- You must have gotten your home loan before May 31, 2009, and the mortgage must be owned by Fannie Mae or Freddie Mac. Many don't realize that their mortgages are linked to these two government-backed agencies since they don't deal with the public directly; check with your lender to make sure.
- You must be current on your mortgage at the time of the refinance, with no late payments in the past six months and no more than one late payment in the past 12 months.
- You must owe more than 80% of what your house is worth. So if your home is currently valued at $200,000, you must owe more than $160,000 on your mortgage.
Why homeowners should act fast
HARP is scheduled to expire on Dec. 31, 2016. There's always the chance that this deadline could be extended, but you never know.
"It has been extended before, so I wouldn't be surprised if it does so again," said Jason van den Brand, co-founder and CEO of Lenda.com, an online mortgage platform. "But a consumer certainly shouldn't count on that to happen." So interested homeowners should inquire sooner rather than later.
For more information on HARP and to start your application, visit HARPprogram.org. Or call the help line at 888-666-5019 to find out if you qualify.
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