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What Are Some HARP Advantages?

By Stevie Duffin-Lutgen Updated on 8/5/2013

Toy houseWhile not all homeowners have access to refinance loans through the Home Affordable Refinance Program (HARP), eligible borrowers can benefit tremendously, especially those with underwater mortgages and high interest rates. This article will briefly explore the main advantages of the HARP 2.0 program, as well as covering what borrowers will benefit most from a HARP refinance.

Lower Monthly Mortgage Payments

In general, one of the best HARP advantages is that these refinances provide borrowers with access to lower HARP interest rates and consequently lower monthly mortgage payments. Consider the following example:

Imagine a borrower obtained a 30-year conventional mortgage in 2008 with a loan balance of $211,000 and an interest rate of 6.5%. Under these terms, monthly mortgage payments would average at $1,334, considering only principal and interest payments. After four years of making mortgage payments, the borrower would still owe roughly $200,000 on the mortgage; however, the value of the property declines drastically as a result of the housing market collapse, decreasing to only $160,000. As a result, the borrower’s loan-to-value ratio (LTV) would amount to 125%, thereby disqualifying the borrower from receiving any loan refinance and making it impossible to capitalize on falling mortgage rates.

However, due to the lack of HARP LTV requirements, the borrower can access to a refinance loan, allowing him or her to acquire a significantly lower mortgage rate and thereby decrease monthly mortgage payments considerably:

  • If the borrower refinances from a 6.5% to a 4.5% mortgage rate, he or she can expect to save approximately $321 each month and $3,852 annually as a result (not including the cost for taxes and insurance premiums).
  • Likewise, although the term of the mortgage would reset to 30 years, the borrower would save approximately $51,528 over the lifetime of the loan.

Build Equity Faster

In some cases, borrowers may choose to refinance with the aim of paying off the home faster in order to save even more over the course of the loan’s term. These borrowers still may reduce their mortgage payments through the HARP refinance, although they will still pay more each month than those with longer loan terms.

For instance, imagine that the borrower of scenario described above decided to pay off his or her mortgage faster and therefore build equity quicker. Rather than refinancing into another 30-year fixed-rate mortgage, the borrower can switch to a 20-year fixed-rate mortgage (FRM) with the same reduced rate of 4.25%.

  • As a result of this refinance, he or she would save roughly $96 per month on mortgage payments.
  • Over the course of the loan, the borrower would save $119,088 as a result of the interest rate reduction and shorter loan term.
  • As previously indicated, this type of refinance would greatly diminish the lifetime of the loan, which would be paid off 6 years sooner than the former mortgage. Not only that, but it would only take 5.5 years to pay the loan balance down to 100% LTV, allowing the borrower to accumulate equity in a much shorter amount of time.

Altering Mortgage Terms – Even Faster Equity

For those who can afford slightly higher mortgage payments, the benefits of HARP can be even more substantial, as homeowners can access even lower rates and build equity faster with a 15-year fixed-rate mortgage. For instance, with the decreased mortgage terms, the borrower could reduce his or her mortgage rates from 6.5% to 3.75%, lower than those of a 20 or 30-year FRM. With such a low rate, borrowers can save even more over the lifetime of the loan, while accumulating equity much faster and paying off the loan much sooner.

  • While he or she will pay more each month under these circumstances, the borrower will save approximately $154,488 over the lifetime of the loan.
  • Moreover, he or she will pay off the loan 11 years sooner with a 15-year FRM, taking only 3.5 years from the refinance to reach 100% LTV and begin building equity.

Additional HARP Advantages

Aside from these examples, HARP advantages also include:

  • Lenient underwriting
  • No HARP appraisal
  • No income verification
  • No mortgage insurance
  • Ability to change from adjustable-rate mortgage (ARM) to FRM
About The Author:
Stevie Duffin-Lutgen
Stevie Lutgen is the Senior Editor at Lender411. She manages the site's Authorship Program and social media pages. Stevie graduated from UC Santa Barbara with a BS. Contact her: stevie@lender411com.

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