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HARP My Home

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Posted On: 08/07/2013

Question:

Our lender has offered a HARP refinance with no closing costs. Our interest rate will fall from 5.5 percent to 4.25 percent fixed. We'll save $179 a month under the new deal. However, our loan term will increase from 21 remaining years to 30 years. Our loan balance is $108,000. Should we accept the refinance?

Answer:

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You bet.

The lender is suggesting a HARP refinance because your mortgage debt is greater than the value of the property, meaning the property is financially “underwater” and you likely live in an area impacted by the foreclosure meltdown.

Under the federal government's Home Affordable Refinancing Program (HARP) you can generally qualify for new financing if the past 12 monthly payments have been made in full and on time, the loan is owned by Fannie Mae or Freddie Mac, the loan was originated prior to May 31, 2009 and the current loan-to-value ratio is greater than 80 percent.

There are some questions to ask the lender:

• What does "no closing costs" mean?

• Are there any expenses – not just "closing costs" – that you must pay to complete the transaction?

• Are closing costs being paid with a larger loan amount or interest rate that is somewhat above market levels, or a combination? (The costs have to be paid somehow.)

• Is the rate fixed for 30 years? Ask the lender for details and get answers in writing.

• Can the money in your current escrow account be transferred for use with the new loan?

• Can you prepay the new loan in whole or in part, at any time, and without penalty? If yes, you can increase your payment by $179 per month, substantially reduce the length of the loan term and pay no more than you're paying now.

You have a chance to reduce your housing costs by $2,100 a year or more than $10,000 during the next five years. Without HARP, this opportunity would not exist.

Unless you can find a better alternative, this is an option to grab.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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