Refinancing: Making the Most of Your Mortgage

Although homeowners can't predict a catastrophe such as unemployment, they can take steps to lower their exposure to mortgage problems and potential inability to make payments. The most popular reason for refinancing is lowering interest rates and monthly payments. If you're planning to keep your home for several years, today's low refinance mortgage rates can allow you to be proactive in keeping mortgage payments affordable.

Refinance, Modification Programs Available

Mortgage lenders typically will allow you to refinance no more than 80% of your home's current value. What if your home equity has all but disappeared due to falling home prices? Here are some ideas for getting the refinance you need if you've lost most or all of your home equity.

FHA refinance: FHA refinance programs allow homeowners to refinance non-FHA loans up to 97.75% of their home's value as long as they don't take any cash out or pay off any loans other than their existing mortgage(s). Some closing costs can even be rolled into the new mortgage.

FHA streamline refinance: If you currently have an FHA insured mortgage loan, you may qualify for a streamline refinance. This is faster, cheaper, and requires less documentation.

Making Home Affordable Refinance Program (HARP): This government-sponsored program can assist homeowners whose mortgages are owned or serviced by Fannie Mae or Freddie Mac. Final eligibility is determined by your mortgage lender, but basic eligibility requirements include:

  • You own a 1-4 unit home.
  • You are current on mortgage payments (meaning that no payments have been made more than 30 days late during the preceding 12 months).
  • Your new mortgage cannot not exceed 125% of your home's current value.

For homeowners facing foreclosure due to loss of income, severe loss of home value, or other hardship, the Home Affordable Modification Program (HAMP) may provide assistance. The most important thing homeowners can do is contact their mortgage servicer for information on available foreclosure prevention programs.

Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.

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