Average 30-year fixed mortgage rates dropped to 4.12 percent last week – the lowest rate in over 50 years. That means you’re now at an advantage if you’re looking to refinance – if you’re eligible. Since many currently don’t qualify, the White House is considering giving the Home Affordable Refinance Program, HARP, a facelift. The overhaul will allow responsible homeowners the opportunity to refinance at lower rates. That could mean hundreds or thousands in savings for some.
Here are a few ways the changes will help:
Easier for borrowers
The current HARP program allows borrowers with loans worth 80 to 125 percent of the value of their houses to refinance without the need to take out mortgage insurance or pay down more cash. But that can be costly and can often defer savings from a refinancing, making homeowners reluctant to do so.
The White House is now working with the Federal Housing Finance Agency, FHFA, to get rid of regulations which keep responsible homeowners from refinancing – responsible meaning that they pay their mortgage on time. Homeowners who can’t refinance because of a lack of equity or because of strict loan standards will have an easier time.
With the 30-year fixed mortgage rates at around 4 percent, homeowners can potentially save hundreds a year on their mortgage. Let’s say you have a mortgage of around $100,000, and you’re paying a 6 percent interest rate. Refinancing at an interest rate around 4 percent could save you more than $100 per month. If you invest the difference, you’re really saving some money.
Fannie Mae and Freddie Mac, the two major loan giants, currently charge risk-based fees for refinancing. The new proposed changes could reduce the fees that often price out qualified homeowners.
The administration is also considering raising the loan-to-value cap currently at 125 percent. That will allow those who are very underwater on their loans to refinance.
All changes have to pass through the FHFA before coming to fruition, which could take a while. And banks have to assume the risk of buying back the loans if the homeowner defaults, which means losing money on the investment. There is also a concern about raising the loan-to-value ratio of homes, since those loans wouldn’t be authorized for sale into mortgage-backed securities pools.
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