When is a HARP refinance worth the cost?

HARP allows borrowers to refinance up to 125 percent of the value of their homes. If you are on the borderline, adding closing costs to the loan amount may put you beyond that threshold.

Despite what the guidelines of the program allow, most lenders are unwilling to offer refinancing for borrowers who owe more than 105 percent of what their home is worth, Conarchy says.

Credit score and equity may affect refi costs

As with other types of mortgages, the amount of money you borrow compared to the value of your property and your credit score also affects your interest rate.

HARP loans must follow Fannie Mae and Freddie Mac guidelines, which include higher fees for borrowers with lower scores, less equity or lower down payments.

Tamara King of the Mortgage Bankers Association says the requirement imposed by Fannie and Freddie can make the cost of refinancing prohibitive to some borrowers, even under HARP.

Fannie's guidelines require a borrower with a credit score of less than 620 and little or no equity in the home to pay 3 points more for a loan than a borrower who has a 720 credit score and the same amount of equity. (A point is 1 percent of the amount of the loan.) A borrower with a score of 680 would be charged half a point more than the borrower with the 720 score.

The points can be paid as fees or translated into higher interest rates. Rather than charging the higher interest rate, which could defeat the purpose of refinancing, lenders offer borrowers the opportunity to buy points to get a lower rate -- but that may cost anywhere from a few hundred to a few thousand dollars extra in closing costs.

King says the association has recommended that the regulators re-evaluate the pricing guidelines for loans under HARP.

"We are not saying it should be completely abolished," she says. "We understand why they are in place, but we recommended they evaluate what could be done to ease the burden on the borrower," under HARP.

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