HARP: good deal or not?
September 27, 2012 10:00 PM Subscribe
I have a mortgage that is perfectly healthy. Should/can I do a HARP refinance on it?
I bought my house in 2008 with a mortgage at 6.5% interest. It's definitely a starter house, and I'll almost certainly sell in the next couple of years. The payments are very small compared to my income (under 10%) so I have no pressing reason to do a traditional refinance. The house is definitely not underwater (actually it's probably gone up a bit, the vacant warehouse next door got fixed up and turned into an expensive restaurant).
My lender sent me a letter saying they could give me a HARP refinancing for 4.3% interest with no closing costs.
So the first question is: why is the lender doing this? Are they that afraid I'll refinance with someone else? I am suspicious that this is some kind of scam.
Secondly: how guaranteed is this kind of offer? I work insane hours and don't really have time during the day to go to a bank, meet with a broker, etc. unless it's a really worth it. I don't want to invest a couple of days of effort and find out that the lender is out of HARP refinancing slots, or whatever. Presumably they already know my credit score since they have all my information? Do they think my house is underwater, even though it isn't?
Thirdly: is it OK to take this deal, and sell my house / pay it off in a year? Or are there strings attached to the HARP program that would make that difficult or expensive?
I feel like a bit of an idiot here. Can someone explain this to me using simple sentences that someone who isn't in the real estate business can understand?
I bought my house in 2008 with a mortgage at 6.5% interest. It's definitely a starter house, and I'll almost certainly sell in the next couple of years. The payments are very small compared to my income (under 10%) so I have no pressing reason to do a traditional refinance. The house is definitely not underwater (actually it's probably gone up a bit, the vacant warehouse next door got fixed up and turned into an expensive restaurant).
My lender sent me a letter saying they could give me a HARP refinancing for 4.3% interest with no closing costs.
So the first question is: why is the lender doing this? Are they that afraid I'll refinance with someone else? I am suspicious that this is some kind of scam.
Secondly: how guaranteed is this kind of offer? I work insane hours and don't really have time during the day to go to a bank, meet with a broker, etc. unless it's a really worth it. I don't want to invest a couple of days of effort and find out that the lender is out of HARP refinancing slots, or whatever. Presumably they already know my credit score since they have all my information? Do they think my house is underwater, even though it isn't?
Thirdly: is it OK to take this deal, and sell my house / pay it off in a year? Or are there strings attached to the HARP program that would make that difficult or expensive?
I feel like a bit of an idiot here. Can someone explain this to me using simple sentences that someone who isn't in the real estate business can understand?
4.3%, even without closing costs, doesn't seem all that great. Yeah it varies, but in my area rates are down around 3.625% without closing costs for conforming, 30Y fixed, non-jumbo, good credit, etc.
I'd say that you should call a mortgage broker in your area and see if you get get a no-points / no-closing-costs traditional refi that's under 4%, and better close to 3.5%. Then you can continue to pay the same amount you currently are, and you'll be building equity rather than paying interest. When you sell in a few years, you'll end up pocketing the gains.
Unless you have a very lucrative day job, the time involved in the refinance is almost certainly worth it. Exactly how 'worth it' is going to depend on your loan amount, but it's not hard to work out. You can start by running the numbers through an online calculator; you might be surprised at how much you'll get in equity even in a few years, by cutting ~2-3% off your rate.
posted by Kadin2048 at 10:17 PM on September 27, 2012 [1 favorite]
I'd say that you should call a mortgage broker in your area and see if you get get a no-points / no-closing-costs traditional refi that's under 4%, and better close to 3.5%. Then you can continue to pay the same amount you currently are, and you'll be building equity rather than paying interest. When you sell in a few years, you'll end up pocketing the gains.
Unless you have a very lucrative day job, the time involved in the refinance is almost certainly worth it. Exactly how 'worth it' is going to depend on your loan amount, but it's not hard to work out. You can start by running the numbers through an online calculator; you might be surprised at how much you'll get in equity even in a few years, by cutting ~2-3% off your rate.
posted by Kadin2048 at 10:17 PM on September 27, 2012 [1 favorite]
If your current rate is 6.5% and you're not underwater, you should definitely refinance. You don't need HARP, just a conventional refi. Rates are around 3-4% right now so you will save a significant amount of money if you're only 4 years into a 30-year mortgage.
posted by rabbitrabbit at 10:20 PM on September 27, 2012 [1 favorite]
posted by rabbitrabbit at 10:20 PM on September 27, 2012 [1 favorite]
The scam is the 4.3% rate. That's pretty high these days.
posted by JPD at 3:50 AM on September 28, 2012 [5 favorites]
posted by JPD at 3:50 AM on September 28, 2012 [5 favorites]
If your bank is the same one as mine (Chase), they will send you another letter in a few weeks offering HARP again at an even better rate. Hold out for that.
posted by JanetLand at 4:57 AM on September 28, 2012
posted by JanetLand at 4:57 AM on September 28, 2012
if it is Chase do not refinance with them, there is absolutely no benefit to keeping your loan with your current lender. They will lie to you and give you a teaser rate then tell you some computer program designated your loan to value ratio too high or some bullshit then raise the rate a 1/2 point a week before you are supposed to close. Fuck them, they are the most dishonest company in the business, get your money away from them any chance you get.
posted by any major dude at 5:29 AM on September 28, 2012 [1 favorite]
posted by any major dude at 5:29 AM on September 28, 2012 [1 favorite]
Nthing "Fuck Chase" as they screwed me over on my mortgage a couple years ago.
There are refinance calculators out there - just plug in how long you'll be in the house, what your payment is now, what your payment will be, and what the closing costs will be, and you can figure out if it's worth the hassle.
posted by getawaysticks at 7:52 AM on September 28, 2012
There are refinance calculators out there - just plug in how long you'll be in the house, what your payment is now, what your payment will be, and what the closing costs will be, and you can figure out if it's worth the hassle.
posted by getawaysticks at 7:52 AM on September 28, 2012
If your 1st payment started 9/1/2008, and your mortgage was for 250K for 30 years at 6.5%, your payment (before prop. tax, etc.) is 1,580.17, and your balance is 237,356.03.
If you refi 237,356.03 for 26 years (you can't, but for comparison) at 3.75 (you should be able to do better), your payment is $1,192.06, and you save $388.12/month. That's $4657.37/year.
In reality, you could refi 237,356.03 for 30 years at 3.5 (you might be able to do better), your payment is $1,065.83, and you save $514.34/month. That's $6172.02/year. Don't pay points, and be a hardass about closing costs, which could eat 1/3 that. I recommend the refi, even if you only stay 1 year. Or, if you can afford it, get a 15 year mortgage, and build equity faster and pay less interest over the long run. In any mortgage, you pay most interest, and get the most tax benefit, in the early years.
I ran the numbers with this spreadsheet https://sites.google.com/site/spreadsheets/spreadsheet-categories/financial-sheets/mortgage-amortization-with-paydown. I saved a copy to my google docs so I could try different scenarios.
posted by theora55 at 10:38 AM on September 28, 2012 [1 favorite]
If you refi 237,356.03 for 26 years (you can't, but for comparison) at 3.75 (you should be able to do better), your payment is $1,192.06, and you save $388.12/month. That's $4657.37/year.
In reality, you could refi 237,356.03 for 30 years at 3.5 (you might be able to do better), your payment is $1,065.83, and you save $514.34/month. That's $6172.02/year. Don't pay points, and be a hardass about closing costs, which could eat 1/3 that. I recommend the refi, even if you only stay 1 year. Or, if you can afford it, get a 15 year mortgage, and build equity faster and pay less interest over the long run. In any mortgage, you pay most interest, and get the most tax benefit, in the early years.
I ran the numbers with this spreadsheet https://sites.google.com/site/spreadsheets/spreadsheet-categories/financial-sheets/mortgage-amortization-with-paydown. I saved a copy to my google docs so I could try different scenarios.
posted by theora55 at 10:38 AM on September 28, 2012 [1 favorite]
You probably won't qualify for HARP; IIRC its aimed at people who can't afford their mortgages.
However, you can definitely do much better than 6.5%, or 4.3%, for that matter, and save a significant amount of money. The catch may be that if you are planning to sell soon you may not recoup the various fees and other costs, like title insurance, but those are almost always something that the bank will be willing to reconfigure in order to get your business. With money basically free for banks right now, even 3.5% is a healthy profit for them.
Mortgage professor is a good source for information and calculators, though some of it can be a little outdated.
Don't wait for the bank to contact you; calling around is worthwhile. Rates online are generally not as accurate as what you'll hear over the phone. Some banks and loan officers have some flexibility on the rates. Tell them the best rate and terms that someone else offered and see if they'll match it.
Try a local bank first. The advantage is that they will probably work with you to get a good rate and a good appraisal (which is key - you need to have a loan-to-value ratio of about 80%; that is, what you owe can't be more than 80% of the value of your house as determined by a not-very-accurate formula). They will also do what they can on the fees and help with the paperwork. The downside is that they will almost certainly sell your mortgage to a bigger bank in the first month or so. Mortgage brokers - at least in my experience - don't offer much advantage over a local bank; in this case the bank essentially functions as a broker anyway.
Also, this will be much harder if you're freelance. You may have to show as much 2 years of steady freelance income to qualify these days, since there was a lot of abuse of this during the go-go years.
posted by RandlePatrickMcMurphy at 10:44 AM on September 28, 2012
However, you can definitely do much better than 6.5%, or 4.3%, for that matter, and save a significant amount of money. The catch may be that if you are planning to sell soon you may not recoup the various fees and other costs, like title insurance, but those are almost always something that the bank will be willing to reconfigure in order to get your business. With money basically free for banks right now, even 3.5% is a healthy profit for them.
Mortgage professor is a good source for information and calculators, though some of it can be a little outdated.
Don't wait for the bank to contact you; calling around is worthwhile. Rates online are generally not as accurate as what you'll hear over the phone. Some banks and loan officers have some flexibility on the rates. Tell them the best rate and terms that someone else offered and see if they'll match it.
Try a local bank first. The advantage is that they will probably work with you to get a good rate and a good appraisal (which is key - you need to have a loan-to-value ratio of about 80%; that is, what you owe can't be more than 80% of the value of your house as determined by a not-very-accurate formula). They will also do what they can on the fees and help with the paperwork. The downside is that they will almost certainly sell your mortgage to a bigger bank in the first month or so. Mortgage brokers - at least in my experience - don't offer much advantage over a local bank; in this case the bank essentially functions as a broker anyway.
Also, this will be much harder if you're freelance. You may have to show as much 2 years of steady freelance income to qualify these days, since there was a lot of abuse of this during the go-go years.
posted by RandlePatrickMcMurphy at 10:44 AM on September 28, 2012
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Someone more knowledgeable will come along and give you input, I'm sure.
posted by ethidda at 10:06 PM on September 27, 2012