Underwater borrowers get government aid

Homeowners who have kept up-to-date with their mortgage payments but have been locked out of the refinancing rush because they have little or no equity are about to get some relief from an expansion of an existing federal government program.

President Obama announced that the Home Affordable Refinance Program (HARP), which started in 2009, has been extended through 2013. If you have a home loan owned or backed by Fannie Mae or Freddie Mac and are current on your mortgage payments you are eligible to refinance unless you refinanced your mortgage within the past 2.5 years.

HARP changes

While in the past, this program was limited to borrowers whose home value was no more than 25 percent of their mortgage loan, the revised rules have no limitation. In addition, some fees for closing costs will be reduced or eliminated.

Fannie Mae and Freddie Mac say they will provide details of the program to lenders on November 15. The program is expected to begin in December 2011.

One potential problem with this program is that participation by lenders is voluntary. The best way for you to find out if your lender will allow you to refinance is to gather your loan documents and all other financial information and call your lender after the program is in place.

Refinance savings

If your goal is to reduce your monthly payments, this program is likely to help. How much you can save depends on your current mortgage rate and the new mortgage rate. Mortgage rates on a 30-year, fixed-rate home loan averaged 4.42 percent for the week ending October 21, 2011, according to HSH.com. For a 15-year, fixed-rate home loan, HSH.com says the average rate was 3.71 percent.

If you have a mortgage of $200,000 at six percent and can refinance to a mortgage with 4.5 percent, you could save $3,000 per year on your mortgage payments.

For underwater homeowners who have a mortgage with a lender willing to work with the HARP program, mortgage refinancing could be possible within a few months.