Obama Home Mortgage Refinance Plan

Among the efforts under the Obama administration to mitigate the many-year housing crisis that was born during Bush administration is a home mortgage refinance plan called Home Affordabe Refinance Plan, or HARP – now in its second phase referred to as HARP 2. The Obama Home Mortgage Refinance Plan was created to help homeowners whose home’s value had dropped below the loan amount (underwater), in order to help them gain access to lower interest rates and refinance to lower the monthly costs of their home payment. The program had helped almost 900,000 homeowners. and almost 2 million if you count another related program put in place under the Obama Home Mortgage Refinance Plans

While Obama’s HARP refinance plan doesn’t change the size of the loan (the principal balance is unchanged), the ramifications are  similar given how most people pay their loan down over 30 years:

  • The payment on your $500,000  (30 year) loan at 4.25% is $2,459/month
  • The payment on your $400,000  (30 year) loan at 6.25% is $2,462/month

In effect, the scenario above demonstrates that – allowing a homeowner to refinance to a lower rate helps him or her with the monthly cost as much as reducing their principal balance $100,000.  The sum of payments over 30 years is going to be nearly the same due to the improved interest rate, (vs. a scenario, whereby the lender lowers principal of the old, higher rate loan.

Without HARP, homeowners would be stuck in their current loan  because one refinancing is no an option when a home’s value has declined below the loan value.  Lenders won’t lend on an LTV below 80%.   See the program’s guidelines to see if you qualify.

Previous post:

Next post: