How Does Harp Help Underwater Borrowers?

The revised HARP program could allow an estimated two million homeowners to refinance even with low or no equity in their homes.
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Many underwater homeowners have been left behind during the refinancing rush of the last few years, watching as their neighbors take lock in historic-low mortgage rates on their loans. But revisions in the federal Home Affordable Refinance Program (HARP) may help change that.

In spite of good credit and a strong record of on-time mortgage payments, some homeowners have been unable to refinance their homes because of declining home values. According to data from CoreLogic, approximately one in four homeowners is underwater today.

Refinancing options with HARP

In order to refinance with the HARP, you must meet certain specific requirements:

  • Your mortgage must have been sold to Fannie Mae or Freddie Mac before June 1, 2009. To find out if your mortgage is owned by either of these agencies, you can ask your lender or go to or
  • You must be current on your mortgage, with no late payments in the past six months and no more than one late payment in the past 12 months

One of the biggest changes recently made to this program is the removal of any limitation on the amount of equity in your home. Previously, homeowners could refinance only up to 125 percent loan-to-value under the HARP program.

But now even if you are underwater by more than 25 percent you may be able to refinance with HARP. Since the value of your home is no longer part of the refinancing qualification, you can even refinance under this program without an appraisal.

The second change to the HARP program is that homeowners with a first and second mortgage will have less trouble refinancing. New rules now allow second mortgage loans to be re-subordinated.

The HARP program has been extended until December 2013, and the best way to find out about your eligibility and options under the HARP is to contact your lender. Applications for HARP refinances are expected to be available in early December.

Home refinance choices

While the primary goal of the HARP program is to allow underwater homeowners to refinance into lower mortgage refinance rates, you should weigh the pros and cons of a mortgage refinance on an individual basis. While paying less interest on your mortgage loan is always beneficial, you need to consider the costs of refinancing to make sure the savings in interest are worthwhile.

Think about your goals for a refinance. If you hope to pay off your mortgage as soon as possible, you can reduce not only the interest rate you pay, but also the length of your loan term. You can use a mortgage calculator to compare your monthly payments at different interest rates and terms.

If your goal is to reduce your monthly payments to ease your cash flow, you will want to refinance into a 30-year fixed-rate loan. Just remember that while the lower monthly payments are helping you now, you could end up paying more in interest over the life of the loan by extending your mortgage loan.

Your financial plan may not have anticipated declining home values, but a home refinance can be a great tool to help ease the burden.

About Author
Michele Lerner, author of “HOMEBUYING: Tough Times, First Time, Any Time”, has been writing about personal finance and real estate for more than two decades for a variety of publications and websites including MoneyRates,,,, National Real Estate Investor magazine, The Washington Times, Urban Land magazine, NAREIT’s REIT magazine and numerous Realtor associations.