Mortgage – Understanding The Difference Between Refinancing & HARP?

01.05.2013

What Is the HARP Program Refinance Loan?

The Home Affordable Refinance Program or HARP, devised by Obama administration is meant for people who can’t afford making their mortgage payments. The plan aims to refinance your mortgage, enabling you to make smaller payment for easy payment. If you have insufficient equity in your home, traditional refinancing may not be a very viable option. HARP could help you getting the much needed refinancing. You can approach HARP directly and ask for help. In turn, HARP works with the homeowner’s lender to start the process of refinancing. The program grants financial back-up to the lender on allowing the borrower to refinance their current mortgage into a more affordable loan. This program is different than Home Affordable Modification Program, which requires you to prove your financial incapability for being eligible. One should clearly understand the difference between the two programs before applying for one.

In case of most mortgages, you cannot ask for refinancing unless you have equity in your home. It simply means if you owe more than the worth of your house, you are most unlikely to get loan. HARP allows you to refinance even if it’s the other way round. You may owe even 125 percent of the value of your house and yet be eligible for HARP.

Qualifying criteria

Everyone can’t qualify for a HARP refinance loan. Your loan must have been guaranteed by Freddie Mac or Fannie Mae (Federal Housing Finance Agency.) The borrower should have made timely payments at least for the last 12 months to get their mortgage refinanced at historically low rates of interest. You may participate in this program despite having asked realtors to find you a suitable customer for the house. Your house should not comprise of more than four units.

Basics of Traditional Refinancing

The process of traditional refinancing is an abbreviated version of original mortgage and takes into account your credit worthiness, income, loan to value and the usual mortgage factors. The lender would also like to assess how long you would retain the property and most often would ask you to confirm that at present you have no plans to sell the house. It would be worth finding out how the loan modification would affect closing costs in each kind of refinancing.

Mortgage Insurance

In case of HARP modification, mortgage insurance is necessary only when the original loan had such prerequisite. It doesn’t take into consideration the present worth of the house. On the other hand, traditional refinance would most often require mortgage insurance. In this case, if your equity goes down, you’ll need to enhance mortgage insurance to balance the difference. HARP program has no such stipulation. Though primarily meant to safeguard the interests of the lender in case of any default, the insurance can considerably add to the monthly expense of the borrower.

Other Differences

Compared to traditional refinancing, closing fees are generally lower in case of HARP modifications. Banks offer many options for refinancing for people who are not keen on HARP because of the reduced compensation the bank gets for a HARP loan.

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