If you can refinance a $200,000, 30-year mortgage from 7 percent to 4 percent, you'll end up $135,000 richer. But refinancing these days is a minefield. Wouldn't it be nice if you could pick up the phone and call an expert for free help to get it done? As it happens, you can. Here's some advice and an 800 number.
Everyone wants lower mortgage payments. Here’s an email I recently received…
I was listening to your story on lowering mortgage payments and how this can be done. We would like to lower our monthly payments so our monthly expenses would not be a hardship for us. We have no extra money for anything else. Our mortgage company will not lower our payments, and they do not even want to advise us on other options. We even went through a modification program with them, but all they did was attach our late payments to the end of the total – our interest did not change. We have been current now for two years.
Please let me know where I can go to get some advice.
For most of us, our homes are the biggest investment, and expense, we’ll ever have. The answer to lowering that expense is simple enough, but before we get there, let’s take time out for a musical reminder of just how special a house can be. It’s from 1970…
Isn’t that a great tune? I love it.
OK, now on to Alice’s question: How do I lower my mortgage payments?
Why won’t the mortgage company help?
Imagine I borrow $100,000 from you and agree to pay 7 percent interest. While I make most of my payments on time, other times I don’t – and you have to chase me down for the money. Then several years later, I come back and tell you I’d really rather pay 4 percent. Not only that, but I want you to wade through a ton of paperwork to make it happen. Oh, and by the way, I don’t want to pay you a dime for your help or for agreeing to allow me to pay you less interest.
While a bit simplistic, that narrative illustrates the reason so many homeowners are having trouble refinancing these days.
In days past, refinancing was much simpler. Your lender would help you – not because they wanted to, but if they didn’t, another lender would. These days? Not so much. Alice’s lender knows she can’t easily go elsewhere. Because she’s made late payments, her credit score may be low. They know her house has declined in value, and she may not have enough equity. Competition has declined and requirements have multiplied. In short, they’ve got Alice where they want her – able to make the payments, unable to go elsewhere.
Many homeowners ask the question, “Why won’t they help me?” The question really is, “Why would they?” Lenders are in the business of making money, not helping people. There are only two reasons a lender will help a borrower: first, if it will help them, and second, if the government makes them.
How government programs are helping
We recently did a story called More Help for Homeowners: HARP 2.0. It describes a government-sponsored program designed to help underwater homeowners refinance, providing they meet the following criteria:
- Fannie/Freddie-backed. The mortgage must be guaranteed by government-sponsored Fannie Mae or Freddie Mac. You can check if yours is online – here’s the Fannie Mae loan lookup and here’s Freddie Mac’s. Check Fannie first, since they’re bigger and more likely to have it. You can also contact your mortgage company.
- Be current. You have to be up-to-date with your payments. This means you can only have “one missed (30-day delinquent) payment in the last year, and none in the last six months.”
- Be underwater, or close to it. This program is specifically designed for underwater homeowners. You can qualify without being underwater, but your mortgage must be more than 80 percent of your home’s market value.
Obviously, the above criteria will exclude many. That’s why HUD and the White House have started a new initiative to help all homeowners refinance, not just those with underwater mortgages backed by Fannie Mae and Freddie Mac. Unfortunately, forcing private lenders to help homeowners refinance hassle-free will require an act of a bitterly divided Congress – not likely in an election year, particularly with so many in Congress in the very deep pockets of lending lobbyists.
What homeowners can do now
Wouldn’t it be great if you could just pick up the phone and speak to an expert conversant with every potential strategy to help you refinance or otherwise lower your monthly mortgage payments? As it happens, you already employ one.
For years now, your tax dollars have funded a nationwide network of housing counselors. All Alice – or you – have to do to find one is call 888-995-HOPE (4673) or visit HopeNow.com. The advice is free.
That being said, don’t get your hopes up. The program most likely to help those current on their payments is the one I described above: HARP 2. For those not eligible, we need Congressional action to get more programs in place. Still, since the call is free, it’s worth doing.
Refinancing will make you richer
If you can refinance a $200,000, 30-year mortgage from 7 percent to 4 percent, you’ll be about $375 richer every month. Over 30 years, that’s $135,000 going into your pocket instead of your lender’s. Talk to a housing counselor and see if you can make it happen.
And if you do talk to a housing counselor, please share your experience on our Facebook page. We’re all in this boat together.