Hafemeyer Law

Is a HARP Loan for Me?

President Obama has rolled out a little known plan to assist middle income families who are looking to lower their interest rates. This plan commonly known as the Home Affordable Refinance Program or “HARP” allows many families with a mortgage of less than $625,000 to refinance their mortgage. Which results in lower interest rates, lower monthly payments and in some cases a shortened mortgage term.

This plan is specifically slated to assist the middle class in recovering from the economic downturn in the housing market that has taken place over the last 5 years. Many families have found themselves upside down in their mortgage, i.e. their home values have dropped to an amount that is lower than the balance of their mortgage. It is these individuals that this plan is aimed at helping.

HARP allows homeowners to shop banks for the lowest interest rates, lower their current monthly mortgage payment and in some cases shorten the term of the mortgage. Giving middle class families more money every month to spend, typically around $200-250 dollars a month boosts the economy by allowing for loosened budgets and more discretionary funds to spend. Market analysts state that individuals with an interest rate over 3.11% could benefit from this program.

However, there are downfalls to this program. Although this program may seem like a good alternative, families are discovering a few facts that are important to understand. This program does not decrease the amount of the mortgage. In many cases the amount these families owe is now greater than they did when they entered the program. So if these individuals are contemplating moving in the next few years they may end up owing the bank money at closing. Also, in the event of foreclosure this program may allow the bank to file a judgment against the homeowner for the amount of the mortgage. This depends on the state and the mortgage terms.

Individuals and families should look at the benefits and downfalls to any financial decision before jumping in. Those that are going to stay in their home long term may find the benefits outweigh the concerns. A great resource for questions regarding this type of program is an accountant and a bankruptcy attorney. These individuals can assist families in determined whether or not this program is the right fit for their finances and help look at other options available including short sales, filing bankruptcy and loan modification.

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