Reduce Mortgage Payment: 3 Loan Modification Scenarios
February 25th, 2009 by michael e. riley
Refinancing Under New Housing Plan can be confusing. Below examples provided by the US Treasury Department will help you understand the new Homeowners Affordability and Stability Plan (HASP). Find out if you can refinance or lower your mortgage under the new plan.
Family A: Access to Refinancing
- In 2006: Family A took a 30-year fixed rate mortgage of $207,000 on a house worth $260,000 at the time. (The family put just over 20% down.) They received a Fannie Mae conforming loan with an interest rate of 6.50%.
- Today: Family A has about $200,000 remaining on their mortgage but their home value has fallen 15 percent to $221,000.
- Their “loan-to-value” ratio is now 90%, making them ineligible for a Fannie Mae refinancing.
Under the Refinancing Plan: Family A can refinance to a rate of 5.16%. This would reduce their annual payments by nearly $2,350.
| Existing | Refinancing | |
| Balance | $199,584 | $203,575 |
| Remaining Years | 27 | 30 |
| Interest Rate | 6.50% | 5.16% |
| Monthly Payment | $1,308 | $1,113 |
| Savings | $196 per month, $2,347 per year | |
Family B: Access to Refinancing
- In 2006: Family B took a 30-year fixed rate mortgage of $350,000 on a house worth $475,000 at the time. (The family put just over 26% down.) They received a Fannie Mae conforming loan with an interest rate of 6.50%.
- Today: Family B has about $337,460 remaining on their mortgage but their home value has fallen to $400,000.
- Their “loan-to-value” ratio is now 84%, making them ineligible for a Fannie Mae refinancing.
Under the Refinancing Plan: Family B can refinance to a rate of 5.16%. This would reduce their annual payments by nearly $4,000.
| Existing | Refinancing | |
| Balance | $337,460 | $344,210 |
| Remaining Years | 27 | 30 |
| Interest Rate | 6.50% | 5.16% |
| Monthly Payment | $2,212 | $1,882 |
| Savings | $331 per month, $3,968 per year | |
Family C: Eligible for Homeowner Stability Initiative
- In 2006: Family C took out a 30-year subprime mortgage of $220,000, on a house worth $230,000 at the time (they put less than 5% down). Their mortgage broker – Mom & Pop Mortgage – sold their loan to Investment Bank. The interest rate on their mortgage is 7.5%.
- Today: Family C has $214,016 remaining on their mortgage but their home value has fallen -18% to $189,000. Also, in November, one parent in Family C was moved from full-time to part-time work, causing a significant negative shock to their income.
- Their loan is now 113% the value of their home, making them “underwater” and unable to sell their house.
- Meanwhile, their monthly mortgage payment is $1,538 and their monthly income has fallen to $3,650, meaning the ratio of their monthly mortgage debt to income is 42%.
- Under the Homeowner Stability Initiative: Family C can get a government sponsored modification that – for five years – will reduce their mortgage payment by $406 a month. After those five years, Family C’s mortgage payment will adjust upward at a moderate, phased-in level.
| Existing | Refinancing | |
| Balance | $213,431 | $213,431 |
| Remaining Years | 27 | 27 |
| Interest Rate | 7.50% | 4.42% |
| Monthly Payment | $1,538 | $1,132 |
| Savings: | $406 per month, $4,870 per | |
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