You Can Bank On Our Rates

The most local, national and online bank rates!

Understanding the Government’s Refinancing Program

The government unveiled a few different plans to help embattled mortgage holders stay current and keep their homes. Here, we review the refinancing program.

Category Product: 
Mortgages
Category Finance: 
Personal Finance
Symbols: 
C
BAC
WFC
Keywords: 
refinance, mortgage, government
Introduction: 

The government unveiled a few different plans to help embattled mortgage holders stay current and keep their homes. Here, we review the refinancing program.

By Jeff Brown

Having trouble making your mortgage payments?

As we first mentioned last week, the Obama administration has a new Making Home Affordable program to help troubled homeowners reduce monthly payments by refinancing or modifying their current loans. This week we will look at the first option, the Home Affordable Refinance program.

Both programs are aimed at homes occupied by their owners, not investment properties or vacation homes. On March 19, the government launched a website to guide homeowners through the process.

The refinancing program is for an estimated four to five million homeowners who are current in their monthly payments but cannot refinance to loans with lower interest rates and payments because their homes have fallen in value. To qualify, the applicant’s current mortgage must be owned or guaranteed by one of the government-backed mortgage companies, Fannie Mae (Stock Quote: FNM) or Freddie Mac (Stock Quote: FRE).

Some of the homeowners targeted by this program are “underwater” -- their homes are no longer worth as much as they owe on their current mortgages. Others are not underwater but cannot satisfy lenders’ loan-to-value rules, which typically limit a new mortgage to no more than 80 percent of a property’s current value.

Owners in these two groups can refinance in the conventional way only if they have cash available -- to pay the difference between the old loan and a new one that is smaller, for example. Many people don’t have that much spare cash.

Through the Home Affordable Refinance program, a qualifying homeowner can get a new loan large enough to pay off the old one, so long as the amount is for no more than 105 percent of the property’s current value. The homeowner can thus benefit from today’s low interest rates, possibly reducing monthly payments by hundreds of dollars.

The Treasury Department cites an example of a family that had bought a $260,000 home with a 30-year fixed rate loan for $207,000, charging 6.5 percent. Today the family still owes $200,000 but the home’s value has fallen 15 percent to $221,000. With an 80 percent loan-to-value requirement, this borrower could not get a new mortgage for more than $176,800, which is too little to pay off the old loan.

Through the government refinance program, the family could get a new loan for $200,000 at 5.16 percent, using it to pay off the old mortgage. Because of the lower interest rate, monthly payments would fall by nearly $200.

To see if you qualify, start with the program’s questionnaire. It asks whether you are the owner of a one- to four-unit home with a mortgage owned or guaranteed by Fannie Mae or Freddie Mac. (Your loan-service company can tell you this, or you can use the government site to find out.)

Then the questionnaire asks if your payments on the current mortgage are up to date, which means you have been no more than 30 days late in the past 12 months. Finally, it asks if the remaining debt on the current mortgage is about the same as or less than the home’s current value.

If you answer “yes” to all four questions, you will be given instructions on starting the application process. Basically, that means contacting your loan servicer – the company that receives your monthly payments – and supplying information on your income and debts.

Before doing that, study current interest rates and use the manybanking.com calculator to see how much you could cut your monthly payments.

For insight into your property’s current value, look at recent sales in your neighborhood. The National Association of Realtors has a home-value tool on its site.

Aside from the government’s program, check out sbup’s mortgage search tool. You can find mortgage rates and offers from the small lenders, as well as the giants like Bank of America (Stock Quote: BAC), Wells Fargo (Stock Quote: WFC) and Citibank (Stock Quote: C)

Disable Autopaginate: 
Auto Paginate
Body: 

By Jeff Brown

Having trouble making your mortgage payments?

As we first mentioned last week, the Obama administration has a new Making Home Affordable program to help troubled homeowners reduce monthly payments by refinancing or modifying their current loans. This week we will look at the first option, the Home Affordable Refinance program.

Both programs are aimed at homes occupied by their owners, not investment properties or vacation homes. On March 19, the government launched a website to guide homeowners through the process.

The refinancing program is for an estimated four to five million homeowners who are current in their monthly payments but cannot refinance to loans with lower interest rates and payments because their homes have fallen in value. To qualify, the applicant’s current mortgage must be owned or guaranteed by one of the government-backed mortgage companies, Fannie Mae (Stock Quote: FNM) or Freddie Mac (Stock Quote: FRE).

Some of the homeowners targeted by this program are “underwater” -- their homes are no longer worth as much as they owe on their current mortgages. Others are not underwater but cannot satisfy lenders’ loan-to-value rules, which typically limit a new mortgage to no more than 80 percent of a property’s current value.

Owners in these two groups can refinance in the conventional way only if they have cash available -- to pay the difference between the old loan and a new one that is smaller, for example. Many people don’t have that much spare cash.

Through the Home Affordable Refinance program, a qualifying homeowner can get a new loan large enough to pay off the old one, so long as the amount is for no more than 105 percent of the property’s current value. The homeowner can thus benefit from today’s low interest rates, possibly reducing monthly payments by hundreds of dollars.

The Treasury Department cites an example of a family that had bought a $260,000 home with a 30-year fixed rate loan for $207,000, charging 6.5 percent. Today the family still owes $200,000 but the home’s value has fallen 15 percent to $221,000. With an 80 percent loan-to-value requirement, this borrower could not get a new mortgage for more than $176,800, which is too little to pay off the old loan.

Through the government refinance program, the family could get a new loan for $200,000 at 5.16 percent, using it to pay off the old mortgage. Because of the lower interest rate, monthly payments would fall by nearly $200.

To see if you qualify, start with the program’s questionnaire. It asks whether you are the owner of a one- to four-unit home with a mortgage owned or guaranteed by Fannie Mae or Freddie Mac. (Your loan-service company can tell you this, or you can use the government site to find out.)

Then the questionnaire asks if your payments on the current mortgage are up to date, which means you have been no more than 30 days late in the past 12 months. Finally, it asks if the remaining debt on the current mortgage is about the same as or less than the home’s current value.

If you answer “yes” to all four questions, you will be given instructions on starting the application process. Basically, that means contacting your loan servicer – the company that receives your monthly payments – and supplying information on your income and debts.

Before doing that, study current interest rates and use the manybanking.com calculator to see how much you could cut your monthly payments.

For insight into your property’s current value, look at recent sales in your neighborhood. The National Association of Realtors has a home-value tool on its site.

Aside from the government’s program, check out sbup’s mortgage search tool. You can find mortgage rates and offers from the small lenders, as well as the giants like Bank of America (Stock Quote: BAC), Wells Fargo (Stock Quote: WFC) and Citibank (Stock Quote: C).

Savings Center
Sponsored by

green arrowFinancial Resources

CalculatorCalculators: Access to our Savings, Mortgage, Auto Loan and Personal Finance Tools.