Mortgage rates have dropped to new record lows, and many homeowners have taken advantage of this to lower their monthly payments. It used to be you had to have the right amount of equity in your home to qualify for a mortgage refinance. Roughly 28% percent of American homeowners have “underwater mortgages”, which means that they owe more than their house is worth, and previously these homeowners would not be able to refinance because of a lack of equity.
The Home Affordable Refinance Program offered through the government hopes to toss the American homeowners with underwater mortgages a life line. Essentially, if you have a loan guaranteed or backed by either Fannie Mae or Freddie Mac, you can refinance up to 125% of your home’s worth.
Freddie Mac and Fannie Mae’s loan limits are presently $729,750, so chances are good that you have a loan backed by Freddie or Fannie if your principal on your mortgage was lower than that. About 75% of the loans guaranteed by Fannie Mae or Freddie Mac have an interest rate of 5% percent or more, while the current rates for a 30 year fixed rate come in at 4.21%, making a mortgage refinance extremely attractive to many of these homeowners.
The H.A.R.P program does have a strict guideline for eligibility:
You have to be up to date on your mortgage payments and never been more then thirty days late on making a payment for your mortgage in that last year.
You have to owe more then your house is worth, but not more then 125% of the value of your house.
And of course you have to be able to make the new payments.
Bank of America is a huge supporter of the H.A.R.P program but has even stricter guidelines. For example, Bank of America will qualify you if the principal of your current mortgage is 105% of your homes current listed value. They also warn that the process for approval can take several months.