Compare No-Cost HARP Refinance Program to Traditional Refi

by Maria from Utica, NY

Ask Kate to compare no-cost HARP refinance program to traditional refi: Maria is considering two refinance options. Both loans are for 20 years. The HARP refinance has lower closing costs but the traditional refi has a lower interest rate. More importantly, you'll find another crucial consideration that Maria missed.


Ask Kate: Compare No-Cost HARP Loan to Traditional Refinance with Fees

By Maria from Utica, NY

Compare No-Cost HARP Refinance Program to Traditional Refi
Hi Kate,

I have been looking into refinancing our current mortgage. We have 17.6 years left with an interest of 5.25 percent. It is owned by Wells Fargo and is a Fannie Mae.

Wells recently contacted us to do a HARP streamline refinance for 20 years. They said it would be a no fees straight refi. The only documents they need is a utility bill and a bank statement. The traditional lender, First Niagara, is offering a 20 year refinance with an interest of 3.25 percent and the closing cost would be about 10,000.

It seems to me the traditional refinance would save more over 20 years even with the closing costs.

Can you help me? Thank you, Maria

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Kate's Answer: Compare No-Cost HARP Loan to Traditional Refinance with Fees

Hi Maria,

Paperwork: The first comparison is a simple one, the amount of paperwork you'll be required to produce. Wells Fargo has already stated that for a HARP loan, they ask for a utility bill and a bank statement.

You can learn more about HARP at New HARP 2 Loan Announcement, including eligibility and underwriting qualifications.


The traditional refinance will no doubt want more paperwork but unless you have a complicated financial profile, you are merely looking at a couple of W2s, paystubs and an additional bank statement - not reams of paper.

A comprehensive list of traditional paperwork required by mortgage lenders can be found at Organize and Save Time with Kate's Mortgage Information Planner.

Compare Mortgage Rates and Closing Costs: HARP vs Traditional Refinance


Terms: Since both lenders are offering a 20 year term, there's not a pressing need to compare the cost of, let's say, a 15-year to a 30-year mortgage. However, if this type of comparison interests you, go to Mortgage Refinance: Calculate Breakeven Points of Different Terms for my overview.

Now let's jump into comparing numbers. (Note that I'm using $300,000 for your current loan balance since I am not privy to the actual amount you owe.)

Mortgage Rates: You didn't mention a quoted HARP rate so I'll assume the rate will remain at 5.25 percent, the advantage to refinancing being a lower payment due to spreading the remaining balance out over 20 years. The traditional refi offers 3.25 percent, a full 2 points below your current rate.

Loan Amounts: $300,000 for the no-cost HARP refinance. $310,000 for the traditional refinance to accommodate financing the closing costs.

Monthly Payments: Based on these numbers, the HARP loan would have an estimated principal and interest monthly payment of $2,022. The traditional refinance would have an estimated principal and interest payment of $1,759.

Interest Paid: Over 20 years, you would pay about $185,000 in interest for the HARP loan. For the traditional refi, you'd pay about $112,000 in interest.

Compare Mortgage Insurance: HARP vs Traditional Refinance


At this point, with the exception of the amount of paperwork, a traditional refi might be looking most desirable. But here's a comparison that you didn't ask about. It has to do with paying private mortgage insurance (PMI).

If you are not currently paying PMI yet your home's equity has dropped below 20 percent, the traditional refinance may require mortgage insurance. If so, this will likely increase your monthly payment. However, a HARP loan will not add PMI to the monthly payment if you are not currently required to pay it.

So, keep in mind that PMI can throw off your bottom line since the earlier comparisons take only principal and interest into consideration.

You might want to consider bringing in the two lenders on your thoughts as they may have other suggestions and considerations based on what they know of your individual situation.

You can learn more about paying (and getting rid of) private mortgage insurance at What Is PMI?.

How to Make Your Own Mortgage Comparisons


Perhaps other questions have come to mind as you've further contemplated the lenders' offers. Or you'd like to play around with a different set of numbers. You can use my mortgage calculator and tutorials to explore further comparisons. Go to Mortgage Payment Calculator and Tutorials: Learn to Calculate Early Pay-Off to get started.

One last thought. To compliment your shopping efforts, you can also use these methods of comparison: 3 Ways to Compare Mortgage Lenders and Interest Rates .

Best wishes,

Ask Kate

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