HAMP Loan Principal Reduction Repayment

by Steve in Mesa, AZ, by Guy in Ft. Pierce, FL, and by Dar in Henderson, NV

Ask Kate about repaying HAMP loan principal reductions: Principal reductions to the loan balance during the mortgage modification approval process help to bring down house payments to affordable levels. But Steve asks if he'll trigger a repayment of the principal reduction if he pays off his mortgage early.



Next, Guy tells me he is running out of options after his mortgage modification wasn't approved. He is hoping to refinance a non-HARP investment property.

Lastly on this page, Dar asks if it's true that disabled veterans can get a better mortgage rate.

HAMP Loan Modification and Principal Reduction Repayment

By Steve in Mesa, Arizona
HAMP Loan Principal Reduction Repayment

Hi Kate,

Upon receipt of a HAMP loan modification, am I responsible for repayment of the principle reduction if I sell the property before 5 years?

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: HAMP Loan Modification and Principal Reduction Repayment

Hi Steve, Before I answer your question, please note that I changed HARP to HAMP in your letter.

I did this because HAMP, Home Affordable Modification Program, is different from HARP, Home Affordable Refinance Program. The modification process re-writes existing terms while refinancing results in a totally new mortgage.

Now back to your question. I can't with full certainty give you a specific answer. But I can tell you what to look for in your paperwork...
  • First of all, did your loan servicer offer a one-time permanent principal reduction of your mortgage as part of the modification terms?

  • Or perhaps your principal reduction is a only deferment? Sometimes distressed homeowners under HAMP experience a portion of their mortgage set aside, to be paid off at a later date, for example, when the house is sold or mortgage refinanced. But meanwhile, the house payment is not calculated on the deferred amount in an attempt to create affordability.

  • Thirdly, is your principal reduction going to be applied incrementally over several years?

Keeping these details in mind, call your loan servicer to verify which scenario pertains to you.

But don't settle for a verbal explanation. Ask them to point to the section in your loan documents that says you are free to pay off the mortgage at any time with no penalty whatsoever.

You can read my answers to more prepayment questions at Extra Mortgage Payments vs Lump Sum Payments.

Best wishes,

Ask Kate

What Are My Options When HAMP and HARP Fail

By Guy in Ft. Pierce, Florida
What Are My Options When HAMP and HARP Fail

Hi Kate:

I am running out of options. I need to refinance a non-HARP investment property.

When my wife and I divorced, I received a 3-unit rental property that is underwater by $25k.

Her name is on the loan, my name is second. The loan is not backed by Fannie or Freddie.

I have not been late on any payment. Her name was taken off the deed with a quit-claim deed.

I have very little saved cash but have some IRA savings. I also pay a mortgage on my actual home which has equity.

I just went through an attempt to do a loan modification with my bank but was turned down because of income. But my bank will not refinance and will not take her name off the loan.

What are my options?

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: What Are My Options When HAMP and HARP Fail

Hi Guy,

You did not mention whether you are struggling to make your house payment. To modify a mortgage on an investment property, HAMP guidelines require homeowners to be delinquent on monthly house payments.

Some investors, in hopes of securing a HAMP approval, have strategically quit making payments. This is a slippery slope and one to gravely consider beforehand.

Since your underwater mortgage is not backed by Fannie Mae or Freddie Mac, a HARP 2 refinance is not an option. But you could try waiting for the proposed HARP 3, hoping it will pan out to include all types of investment property mortgages.

Read the latest news on HARP 3 refinances at President Obama's HARP 3 Proposal: A Better Foundation for Middle Class Homeownership.

Sadly, the other option that comes to mind is to short sale your property if the payment is not sustainable. But you will need to find out if this is a feasible option with your lender since the property is a rental.

Read more about selling a house for less than you owe on your mortgage at Short Sale and HAFA Foreclosure Alternatives.

Since you mention that your ex-spouse's name remains on the mortgage, I also suggest reading Mandy's and JP's stories at Mortgage Assumption After Mortgage Modification as a precaution.

Best wishes,

Ask Kate

Lower Mortgage Rates for Disabled Veterans

By Dar T. in Henderson, NV
Lower Mortgage Rates for Disabled Veterans

Hi Kate:

Is it true disabled veterans can get a better mortgage rate?

I know that there are situations that no money is needed as a down payment, but that does not appeal to me. I also know that some closing costs are waived.

But I want to know if we can get a better interest rate on a fixed 30 year loan? Thanks, Dar Tiffany

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Ask Kate answers: Lower Mortgage Rates for Disabled Veterans

Hi Dar,

VA's hefty funding fee is often discounted for disabled vets. This is not a mortgage program in itself but a VA home loan guideline.

I have also heard of mortgage companies offering a loan modification program for veterans disabled in the line of duty. But unfortunately, the interest rate reduction covers only two years of the loan term.

Best wishes,

Ask Kate

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