I Just Saved $52,218

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It happened in 30 minutes. I refinanced my rental property using HARP 2.0 and saved $52,218 over the life of the loan with only a $1 increase in my monthly payments. Key words in the last sentence: Refinanced, Rental Property, and HARP 2.0.

I’ve followed the government’s Home Affordable Refinance Program (HARP) for years. The original program didn’t live up to expectations so the government revised it and launched HARP 2.0. It’s early, but, from what I’ve seen so far, this program has the potential to truly help people. Let’s break it down:

What is it?

Simply put, HARP 2.0 is the government’s way of protecting their assets…which is fine with me. The government, via Fannie Mae and Freddie Mac, holds millions of mortgages. If you (the borrower) forecloses, they lose. To reduce that risk, they launched HARP and, more recently, HARP 2.0. It gives you (the borrower) an alternative to walking away. Effectively, they said, “if you have a good payment history but are upside down on your home (or rental property), let’s give you a way to refinance so you don’t walk away”. Makes sense right? They reduce the likelihood you default on the loan and you get better terms.

Am I eligible?

HARP 2.0 requirements are fairly straightforward:

  • Good standings on payments (no late payments in last 6 months, only 1 late in the last 12 months)
  • No bankruptcy
  • Loan must be Fannie or Freddie before 6/1/2009. You can either call your lender or look up your property to figure out if your loan is owned by Fannie Mae or Freddie Mac.  FYI – Your bank is probably just servicing your loan, they don’t own it.
  • No limits on Loan to Value – in other words, it’s OK if you owe a lot more than it’s worth.
  • Rental properties and second homes are fine. This is a huge change and will help many borrowers that bought rental properties during the housing boom

How does it work?

I feel like the bureaucracy has been removed from HARP 2.0 and the process if fairly smooth.  Here’s what I suggest:

  • Call your current lender first: Your current lender will likely have the easiest process and best terms including no income verification, rebates on closing costs, etc. Check with them first.
  • Appraisal is not required but expect to pay an appraisal fee: That doesn’t make sense. I know, but, many banks will charge you $400-500 upfront and they provide a $400-500 rebate on closing costs. It sounds silly but the banks making sure people are serious about the process and covering some of the administrative costs upfront.
  • Review all your options/Do the math: If you’re eligible, the lender will give you an option that reduces your monthly payments. That’s great but you should also calculate how the refinance impacts your total cost over the life of the loan. For example, here’s a table of my options (FYI – I had to ask for these figures as many loan officers think only about payments).

    I had 23.5 years (282 months) left on my current loan. Refinancing Option #1 had a $210 lower payment but it took my term back up to 30 years and, as a result, led to an increase in the total cost by $21,822. On the other hand, Refinancing Option #2 had a slightly higher payment but shaved 3.5 years off my loan which led to a significantly lower total cost. In both refinancing options, they added the closing costs to the loan and then showed my payments and total costs (it’s called ‘rolling it into the loan’).
  • Close via email/signatures: I’m expecting documentation via email in the next week. I’ve been told I simply read and sign the documents and the loan will be refinanced. I’ll keep you posted on how this last stage goes.

From my experience, HARP 2.0 seems to be getting off to a good start (it’s hard not to say that when you save over $50,000). The program has loosened eligibility requirements, lowered fees on banks, increased the number of banks that can offer the program and opened the program to rental/second homes. I sincerely believe this program will help people who have been responsible with their payments but seen the value of the property significantly drop. If you’ve been frustrated and thought about walking away or short sale, you may want to consider HARP 2.0.

What else?  What are your experiences with refinancing through HARP 2.0? Do you believe the program will have an impact?

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