Earlier this week, the federal government announced a new program designed to help struggling homeowners with their mortgages. Here is a link to an article that details the situation pretty well: http://money.cnn.com/2011/10/24/real_estate/housing_refinance/index.htm.
It’s not my goal to provide the nuts and bolts of this particular program, the goal is to provide some over-arching context to explain the thought behind these types of programs. From what the news is saying and the rumblings in the real estate community, a number programs like the latest HARP program are going to start popping up. Here is the rationale.
The two biggest problems facing homeowners right now are people having mortgages that they flat-out cannot afford and people having mortgages that they cannot get out of because they have negative equity in their home. Allowing a homeowner to refinance to lower rates works towards helping both problems. The lower rate produces a smaller payment (all else being held equal) and a lower rate “shifts” the way that the principal on the loan is repaid. In other words, the equity builds faster. Lower payments make the loan more affordable and the faster equity build puts homeowners in non-negative equity positions sooner.
I have met quite a few people in the past few months who are interested in selling their property, because they feel their mortgage is too high. However, they cannot sell their property because they do not qualify for a short sale and they are in a negative equity position. Hopefully, this reform will help alleviate the situation over time as people’s situations improve over time.
If you have a loan that qualifies for this program and you are paying a relatively high interest rate, definitely look into this. The outcome could be some Dollars and Sense in your pocket.