What Is the Best Way to Refinance My Mortgage

by Sherry in Rockwall, TX, by Miriam in Yukon, OK, by Ross in Greensboro, NC

Ask Kate for the best way to refinance my mortgage: Instead of refinancing, Sherry has been waiting for her FHA mortgage insurance to drop off. But now that she's reconsidering, I offer ways to compare mortgage payments and determine if a refi is worth the cost. Miriam, a single parent with 2 children and 2 jobs, has just heard of the HARP refinance program. She asks how to know if she's a candidate for the underwater financing.

Ross disagrees with the HARP website which reports that neither Fannie Mae nor Freddie Mac own his mortgage. He wouldn't be the first to investigate.

Should I Try to Refinance My Mortgage

By Sherry from Rockwall, TX

Kate,

I have an FHA loan that closed in July 2009 with $80 of monthly mortgage insurance, 5% interest, and an original balance of $189,000.

I owe about $171,000 at this time.

My credit is probably fair.

Every time I check it out, my current loan seems to be the best situation and besides, the PMI will eventually drop off.

Should I even check into refinancing my mortgage?

Thanks so much, Sherry

Ask Kate answers: Should I Try to Refinance My Mortgage

Hi Sherry,

Shopping for a refinance is often compared by borrowers to getting a root canal!

So your reluctance to jump back into the mortgage maze is understandable.

But if you change your mind, you can do a little digging on your own to determine if refinancing your mortgage is worth the cost.

Paying Mortgage Insurance

Before you fully launch into the refinance mode, my suggestion is to call your loan servicer and ask how much longer they predict that you'll be paying mortgage insurance.

Ask for the criteria they'll apply to your mortgage insurance removal process. For example, will getting rid of PMI require an appraisal? Will you be responsible to pay for it, regardless of the outcome? If your lender expects that your mortgage insurance will drop off or be removed in 3 years, it's possible that you won't get a return on the cost of refinancing your mortgage. (More on this in a moment.)

Calculate and Compare Mortgage Payments

Then call a couple of mortgage companies that lend in your area for an interest rate quote based on your desired term, 30 or 15 years.

Plug the interest rate and loan term into my mortgage payment calculator at this page: Super Kate's Mortgage Rate Calculator - Calculate Payments Like the Pros. Add about 4 or 5% to your current loan balance (5% of $171,000 is $8,550) to reach an estimated loan amount for your refinance. This new figure will roughly accommodate pay-off figures, lender fees, closing costs, and recurring costs such as prorated interest, homeowner's insurance, and property taxes. Plug the estimated loan amount into the calculator as well. Now you can calculate the estimated principal and interest payment based on the new figures.

Using your current principal and interest payment and the new principal and interest payment based on the refinance, go here to learn how to estimate if your mortgage refinance is worth the cost.

HARP 2 Refinance for Lower House Payments Without Mortgage Insurance

With less than 20% equity in your home, you should also look into the HARP refinance program. If you qualify, you'll be able to avoid mortgage insurance regardless of the lack in equity in your home. Best wishes,

Can I use the HARP 2 refinance program?

By Miriam from Yukon, OK

Kate,

This is the first time I've ever heard about the HARP program. I am so nervous as to where to go and how to find out if I qualify.

I am currently having major issues with making my mortgage payment and my bank would not modify the payment because I don't make enough to cover all of my other finances along with a house payment.

They said that my only option is a short sale. I definitely do not want to do that.

Is HARP a refinance program that can help someone like me? I am single parent of two with two jobs and can't seem to see the light. Help!

Ask Kate answers: Can I use the HARP 2 refinance program?

Hi Miriam,

So sorry to hear of your financial difficulties.

Call back your loan servicer to ask what changes in your finances could help you qualify for a HAMP modification loan for lower monthly payments.

Perhaps they'll suggest selling a car to pay off an auto loan, thereby lowering your debt ratio. Even if that means you take the bus for a year or two, saving your home from short sale or foreclosure could make the sacrifice worthwhile. Although homeowners are not restricted to going through their loan servicer for a HARP refinance, you could ask for their opinion on your qualifications after speaking with them about a modification. Of course, you are also free to consult other participating lenders.

HARP Refinance for Underwater Mortgages

HARP (Home Affordable Refinance Program) was created by the Departments of the US Treasury and HUD (Housing and Urban Development). As one of the Making Home Affordable Programs, it offers refinancing opportunities for borrowers with negative equity in their homes, aka underwater mortgages.

But you may also want to read about short sale which is offered under HAFA, Home Affordable Foreclosure Alternatives. Read Deborah's experience Short Sale vs Foreclosure - Agony of Homeownership.

Best wishes,

Have You Seen These Ask Kate Answers

• FHA Loan Modification with Quitclaim Deed: Ironic Twist
• IRS Tax Lien and Mortgage Approval for FHA Financing
• National Mortgage News: More Affordable HAMP Payments
• Should I Refinance My Home But Switch Mortgage Lenders

Got questions? You are invited to ask Kate for answers. Or post a quick comment or related question by clicking the link near the bottom of this page.

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