Today’s historically low mortgage rates have many people dreaming of getting a lower rate on a new home loan. But remember this about a refinance: Home equity really matters.

If you are underwater on your loan, you’ll have a tough time getting a refi. But all is not lost — underwater borrowers do have options.

If your home is mortgaged for more than it is currently worth, you may be a candidate for federal programs such as Home Affordable Refinance Program, or HARP, and Home Affordable Modification Program, or HAMP. These government-sponsored programs help borrowers modify their loans or refinance — home equity woes notwithstanding.

HARP allows qualified individuals to refinance a loan that is up to 125 percent of their home’s current value. To qualify for HARP, the loan must be owned by Fannie Mae or Freddie Mac, and borrowers cannot have any delinquent payments within the past year. Other considerations include the borrower’s credit history, the loan’s structure and certain lender guidelines. To find out if Freddie or Fannie own your home loan, visit

The requirements for HAMP are a little different. The program enables borrowers to reduce their monthly mortgage payment through a loan modification.

To qualify for assistance, borrowers must be able to demonstrate financial hardship that puts them in imminent danger of defaulting on their loan. The home must be their primary residence and the mortgage must be equal to or less than $729,750. In addition, the current monthly payment must exceed 31 percent of the borrower’s gross income.

To qualify for HAMP, a borrower’s loan must be owned by Fannie Mae, Freddie Mac or others who have signed up with the U.S. Treasury to participate in the program.

Although HAMP can lower monthly mortgage payments, it’s not actually a refinance. Rather, it’s a change to the terms of the contract for up to five years. After that period, the mortgage rate may increase by up to 1 percent each year, according to the Making Home Affordable website, until it reaches “the market rate at the time the modification agreement is prepared.”