Lured by the opportunity to reduce their mortgage payments, many homeowners embark in the often-frustrating experience of trying to refinance through HARP -- the Home Affordable Refinance Program.
The federal program, designed to ease refinancing for homeowners who are underwater or have little equity on their homes, may sound like a good opportunity on the surface. But is it worth the time, hassle and money you will need to spend on closing costs?
Borrowers who refinanced through HARP in the first half of 2010 saved an average of $125 to $150 a month on their monthly mortgage payments, according to Freddie Mac.
That's not much, considering some of these borrowers spent thousands on closing costs.
"Borrowers get attracted to refis like moths to a flame," says Ed Conarchy, an investment adviser and a banker at Cherry Creek Mortgage Co. in Vernon Hills, Ill. "They are attracted to that low rate, but sometimes they don't see that's only half of the story. You have to factor in the closing costs."
Closing costs vs. savings
Those with larger loans who got mortgages when rates were in the 6 percent to 8 percent range are more likely to benefit from HARP refinances than homeowners in less-expensive areas.
For instance, a borrower who refinances a $125,000 loan that originally had a 6.5 percent interest rate will save $90.13 a month in mortgage payments with a refinanced loan carrying a 5.375 percent interest rate, according to Jim Sahnger, a mortgage consultant for FBC Mortgage, in Jupiter, Fla. But that borrower would have to spend about $3,230 in closing costs, meaning it would take the borrower almost three years to recoup that money.