Written by Charleston Foreclosure Defense Lawyer, Kristina G. Pierce
If after reading HARP, Part One, you are interested in applying for a refinance of your loan through HARP, you may have some more questions. Below are the answers to some frequently asked questions, which I hope will give you some of the tools to decide whether a HARP refinance might be right for you.
Q: What types of loans are available under the HARP program?
A: Under HARP you can apply for a 30 year, 20 year, 15 year, and for Fannie Mae customers only, a 10 year, fixed rate loan. In addition, 10/1, 7/1, and 5/1 London Inter-Bank Offered Rate (LIBOR), adjustable rate loans/mortgages (also known as ARM’s) are available.
Q: Can I refinance my current Adjustable Rate Loan (ARM) to a Fixed Rate?
A: To give you some background, a fixed rate loan provides interest at a fixed rate for the whole life of the loan. An adjustable rate loan, on the other hand, for example a 5/1 loan, has a fixed rate for the first 5 years of the loan, and then the interest rate is subject to adjustment based on a range set forth in the loan agreement. This adjustable term in an ARM is often referred to as the variable rate component. Traditionally, the interest rate in a fixed rate loan is slightly higher than it is in the fixed rate period of an ARM in order to compensate for the rate risk that the borrower assumes after the expiration of the fixed rate period. But I digress…
Yes, you can refinance from an ARM to a fixed rate mortgage because HARP’s intent is to allow the borrower to obtain a more stable mortgage product. However, a borrower will not be permitted to refinance from a fixed rate mortgage to an ARM for exactly the same public policy reason. In other words, even if the initial interest rate would be lower on an ARM than on a fixed rate, under HARP, the borrower will not be permitted to refinance from a fixed rate loan to an ARM because the borrower will be subject to more risk in how the rate may vary once the fixed rate term has expired.
Additionally, if you already have an ARM loan, HARP permits you to refinance to a more stable ARM. If you presently have a loan that is an ARM, you can refinance to an ARM with a fixed rate that is the same as, or greater to, the fixed rate time remaining on your current ARM loan.
Q: Can I refinance with a lender different from my current lender?
A: Yes, and you should explore your options to refinance with different HARP lenders. Your current lender has very little incentive to allow you to refinance because they will be making less money on your loan. However, when your current lender realizes that you might proceed with a HARP refinance, possibly with another lender, your current lender will likely increase their competitiveness as they have incentive to keep your loan with their institution, at the highest possible rate.
Q: Will HARP allow me to refinance without having out-of-pocket costs, such as closing costs?
A: Although a borrower is responsible for paying closing costs in a HARP refinance, the lender can roll those costs into the refinanced loan. Therefore, you, the borrower, may pay the closing costs in your monthly payment to avoid up-front, out-of-pocket costs. Each lender is different, so you would have to confirm with the lender, but additional costs that may be rolled into the refinanced loan could include points to be paid (financing costs) and escrow costs, including homeowners insurance and taxes.
Fannie May has no limit on the amount of costs that may be rolled into a refinanced loan. However, Freddie Mac has a limit of the amount that may be put into the refinance, which is 4% of the unpaid principal balance of the current loan, or $5,000, whichever is less.
Now you know some of the important questions you should be asking lenders to ensure you get the best deal through a HARP refinance. But remember, these are general answers to questions about refinancing under HARP! Always be sure to ask the lender their specific policy regarding the circumstances of your loan.
Find out more at www.makinghomeaffordable.gov, or call 888-995-4673.
