HARP has come to an end after almost 10 years of helping homeowners who were underwater on their mortgages. With such iconic program coming to an end, will there be a replacement program to continue helping homeowners?
With HARP gone, what will happen next?
The Enhanced Relief Refinance Mortgage program (ERRM) is a program very similar to HARP. Like HARP, the Enhanced Relief Refinance Mortgage lets homeowners who are underwater on their mortgage refinance.
While that may not sound impressive to a few, it is and here is why.
If a homeowner is underwater on their mortgage, it means that they owe more on their mortgage than what their home is actually worth. For example, let’s pretend you wanted to buy the latest iPhone and decided to pay for it in installments. Let’s also pretend that the following week, Apple decided to release an even newer model, making yours cheaper. Since you already committed to your contract, you are now paying more for your phone than what it is currently retailing for.
When a homeowner is underwater, there is no way they can refinance their mortgage. It is way too much of a risk for their lender since the homeowner already owes more than what the home is worth. With HARP, homeowners in this position were given the opportunity to refinance their homes to create some financial breathing room.
Enhanced Relief Refinance Mortgage
Thankfully, HARP’s legacy will not be lost because ERRM will take its place in January 2019. Very much like HARP, ERRM is also designed to help homeowners who are underwater on their mortgage to refinance. While it does not reduce the principal amount (the amount owed on the home), it can help homeowners to refinance and get a lower interest rate, which will help them save money over the life of their loan. Homeowners who have qualified for a refinance have also switched their mortgage type to secure a sense of stability.
If the homeowner currently has an adjustable rate mortgage (ARM), the idea of having the same payment amount due every month might may start looking attractive. While refinancing into a fixed rate mortgage will yield a higher interest rate than what an ARM offers during the initial period, locking in an interest rate while it’s still low may make more sense for them.
ERRM vs. HARP
Although they are both very similar to each other, there are some differences between these 2 programs:
- Unlike HARP, ERRM has no expiration date. HARP faced extinction several times, but was given several lives with extensions.
- Unlike HARP, ERRM has some exclusions. HARP welcomes homeowners who had either loans from Freddie Mac or Fannie Mae. Because ERRM is a Freddie Mac program, only homeowners with Freddie Mac loans are eligible to take advantage of ERRM.
- Homeowners who have HARP mortgages are also not eligible to take advantage of ERRM.
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Which One Program Better than the Other?
There are pros and cons to both programs, but one program is not better than the other. It depends on the homeowner and what they feel is more important to them. While ERRM excludes Fannie Mae loans, it also doesn’t have an expiration date. Is it better to cast a wider net and let more people take advantage of a program but have an expiration date? Or is it better to have less homeowners qualify for a program, but they’ll always be able to take advantage of it? The outcome will most likely turn out the same. People may argue different things for different reasons, but it ultimately depends on the homeowner who is refinancing.