How to Understand Making Home Affordable Refinance Offer

by Cynthia from Marietta, Georgia USA

Ask Kate how to understand Making Home Affordable Refinance Offer: Hi Kate, My mortgage lender is offering a HARP refinance program at 4.125% with them paying all of the closing fees and I can close online. I currently have a 4.625% rate. The two loans are 30-year fixed.

Cynthia continues... I didn't know of the HARP program until the mortgage lender called me. I was leery and asked why they are offering this and was told they are paying the fees to keep the customer from going to another lender. Do you think this is a good offer? Thanks for offering advice.

Kate Answers: Understanding the Making Home Affordable Offer

***zz-portrait-left.shtml*** Dear Cynthia,

Let's see if I can help you determine what to look for in a mortgage refinance.

There's really no sense refinancing with Making Home Affordable HARP Program if it won't be of benefit to YOU, right?

After all, I doubt the process is going to feel like a picnic! So let's zero in on what to look for and what to compare.

Compare Making Home Affordable Refinance Offer to Current Monthly House Payments

Are your current monthly house payments too high? Or another way of saying it is - Can Home Affordable Refinance Program lower your payment substantially? If you answered "no" to both questions, why bother enduring the pain and hassle of refinancing?
Ask Kate Tip: Always compare apples to apples. Don't compare one monthly house payment of principal and interest to another figure that includes monthly property taxes and homeowner's insurance.

Compare Making Home Affordable Refinance Offer to Current Mortgage Balance

I'm leery like you about a lender's intention when something free is offered. So do this. To confirm there are no hidden mortgage closing costs, request a Good Faith Estimate in writing.

Ask Kate Tip: Compare the mortgage balance on the GFE to your current one. You can find this on a payment coupon. Your lender may also provide this information online.

Consider Property Taxes and Homeowner's Insurance

Now here is the tricky part. Even if no fees whatsoever are added into your mortgage, there is still the matter of property tax and homeowner's insurance accounts, often called escrows or impounds.

Will you have to establish new escrow accounts or will the old ones get carried over to your new HARP refinance? Will the balance need increasing as it often does during a mortgage refinance?

Depending on the value of your home, this could amount to a couple of thousand dollars, nothing to sneeze at. Read how to determine if your mortgage refi is worth the cost here.

Consider Prorated Interest

Also to be considered is prorated interest in the month of closing. I will do my best to avoid the lingo but bear with me because this is important.

Remember skipping your first house payment when you got your home loan? That is because mortgages are paid in arrears. Arrears, in this case, doesn't mean you are late making your mortgage payment.

But unlike rent or a car payment, November's mortgage payment is due December 1st. So when you close a refinance, you owe 30 days interest in arrears and depending on the time of the month you close the HARP refi, you may owe additional interest for that month.

Now if you've refinanced lately, you know the next mortgage payment is not due for a month and could argue it all comes out in the wash. But I have another way of viewing this.

Think about this! How will the interest in arrears get paid? Eight times out of 10, prorated interest gets added onto the mortgage balance during a refinance, which in turn, raises the monthly house payments.

Or the homeowner is required to come to the closing table with cash.

Written Good Faith Estimate of Charges

I know I'm belaboring this but you must get an accurate good faith estimate in writing to verify how much, IN THE END, your payment will (or will not) decrease.

Go over these points with your lender until you are confident you have reliable answers. Take notes and get as much as you can in writing. Ideally, this should all be in writing.

Only then will you know if your lender's offer of a HARP refinance will benefit YOU! Discover Kate's 10 Best Kept Secrets to Low Mortgage Payments here.

Comment & Link

Cynthia, one more thing. Is this page helpful to you? I'd like to hear back from you.

You (or anyone else reading this) can comment on How to Understand Making Home Affordable Refinance Offer. Or Ask Kate another question.
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Best wishes,

Back to more Ask Kate Questions and Answers at
Loan Modification - Home Affordable HARP and HAMP - Strategic Default - Real Estate Short Sale - FHA Short Refinance

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