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Despite Low Interest Rates, Many Remain too Skeptical to Refinance

Posted by Kevin Hughes on Tuesday, February 19th, 2013 at 4:20pm.

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There are still plenty of people out there who remain hesitant from the mortgage crisis, and as a result are missing out on some serious opportunities to refinance with historically low interest rates. 

Right now American homeowners across the nation are enamored with low interest rates, but still, not everyone is taking advantage.

For example, we'll look at the case of, we'll call him John Doe, who was offered a deal by his mortgage banker who was absolutely sure he wouldn't refuse. John Doe was paying a rate of 6.16 percent on his $435,000 mortgage with 25 years left to go when he was offered the chance to refinance at 4.125 percent-still holding onto the 25 year payoff time. The deal would have lowered his monthly mortgage payment to $3,383, a savings of $630 a month. The cost to refinance would have been recouped within four months of signing and didn't involve much paperwork or an appraisal valuation. The streamlined process seemed like a no-brainer. But for John Doe, it was a thanks, but no thanks.

In a case like this, most homeowners would jump at the opportunity.

For mortgage brokers, it's usually fairly easy to give away money, and in fact, refinance activity has really taken off thanks to historically low interest rates these past couple years. One group of unfortunate homeowners are the exception to this rule, however, those with homes whose value plummeted and left them without the required equity to qualify for refinancing.

HARP

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But with the introduction of the Home Affordable Refinance Program, these homeowners-who are still current on their payments-are now able to reap the benefits of the same low rates so many others are enjoying. The first government assistance programs to surface after the housing bubble burst were designed only to help those who stopped paying their mortgage entirely. HARP provides those who remain current on their payments an opportunity to restructure their loan, giving more homeowners the ability to stay ahead.

Since the government program's inception back in 2009, HARP has been refined to allow homeowners to refinance regardless of how underwater they are. These revisions aside, some still found quite a few obstacles to jump over, but for 2013 the situation is improving, though it remains a challenge to get the word out to those who may qualify. And for others like John Doe, the convincing has proved difficult, despite the government's efforts.

Retail lenders across the country are making every effort to get the word out about HARP to homeowners who qualify. Dan Gilbert, the founder and CEO of Quicken, has taken an aggressive approach to spread the word. "We get their home number, the business number, their e-mail, we express-mail packages to their house so it looks serious. We leave messages; we tell them, 'Go look up HARP on Google and you'll see it's real.' We don't quit."

The Statistics Of Those Who Qualify

Yet nearly half of qualified homeowners don't respond.

Gilbert goes on to say, "if you would have told me all the facts about how this works before, I would have predicted we'd get 80 percent to 85 percent."

In fact, Quicken reports that only about 25 percent of those who qualify for HARP actually take advantage. Perhaps homeowners just don't understand what really a great program HARP is, a program that reaches out to those who have maintained their payments and in the meantime help the homeowners out there who need it the most.

In an attempt to spread the good news, we'll share a few advantages of the HARP Refinance. Remember, HARP was created to refinance creditworthy homeowners with too little equity to refinance the conventional way. You do not have to demonstrate imminent default or financial hardship to qualify for HARP. Here's what you need:

A 1 to 4 bedroom home.
Your home loan must be owned or guaranteed by Fannie Mae or Freddie Mac.
A demonstration of at least 12 months of on time payments.
Owe no more than 105 percent of your property value.

First, you can check online to see if Fannie or Freddie holds your loan, then you can contact your loan servicer and ask about a HARP refinance mortgage.

landscaping_500In addition to expanded loan-to-value ratios, HARP carries other benefits. You do not have to have a particular credit score to qualify, and unlike conventional refinances, having your home on the market isn't necessarily a deal breaker. And namely, a reduction in property value doesn't hurt you. In fact, if you don't have mortgage insurance on your current home loan, you won't be required to add it with less than 20 percent equity; you don't even have to carry mortgage insurance with negative home equity. On that same note, if you do have mortgage insurance, you won't be required to add additional coverage even if your equity has decreased. Normally, you would.

It would be safe to bet on fewer surcharges. Loan-level pricing adjustments top out at 2 points under HARP, so if you carry factors that might normally drive up the cost of your loan, a low credit score for example, you won't pay through the roof to refinance your mortgage. Without this 2 point cap, you could end up with 5 extra points added to your loan fees.

So, if you're a responsible homeowner looking to reduce your interest rate and decrease your payments, or if you're looking for a modification of your risky loan structure to a more stable one-HARP may be your answer. Now known as "HARP 2" and also "Making Home Affordable," you'll find all the aforementioned benefits as well as lower closing costs, lenient underwriting and oftentimes no property assessments.

For homeowners out there who have the courage to take the chance, you may find that this helping hand is the key you need to enjoy the same low interest rates as everyone else.


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