Updated: May 3, 2013 12:14PM
Q. Is there any hope to refinance my high- rate mortgage if my home has fallen in value? I keep making the payments on time, but it seems ridiculous that banks won't help you unless you fall months behind in payments. I don't want to lose my good credit, and I don't want to default. I just want to take advantage of lower interest rates -- even though I have very little equity left in my home although I originally put 20 percent down when I bought it five years ago!
A. Yours is a common lament. As I wrote in a recent column, banks are reluctant to refi a home with less than 20 percent equity.
But Christine DePaepe, senior mortgage consultant at Wintrust Mortgage, brought to my attention two special programs offered by most lenders. She explains that if your loan is owned or secured by Fannie Mae or Freddie Mac you might qualify for a program to refinance and lower your rate, and thus your monthly payment. These programs also allow people to refinance from an adjustable-rate mortgage or interest-only mortgage to a fixed-rate loan.
DePaepe said the Refi Plus and Open Access options are intended for borrowers who:
?Did not initially have Private Mortgage Insurance (PMI) on their loan.
?Have a loan that was bought by Fannie Mae by March 1, 2009, or Freddie Mac by May 31, 2009.
?Are not having difficulty making their monthly payments.
?Are current on their payments at the time of refinance.
?And have not been delinquent by more than 30 days during the last 12 months (or during the life of the loan if it has existed for less than 12 months).
"Eligible properties for both programs are 1- to 4-unit primary residences (Single Family, Condominiums, and Townhomes), 1-unit second homes and 1-to 4-unit investment properties.
"One tip for condominium owners is that by doing the Fannie Mae DU Refi Plus or Freddie Mac Open Access often makes your refinance easier. Both programs are available through June 30, 2011, and the minimum credit score requirement is 620 to be eligible for either product.
"The DU Refi Plus or Open Access loan will not require any PMI cost (typically required on loans with less than an 80 percent loan to value ratio), which is the major benefit to these programs. Closing costs vary from no cost to a maximum of $1,500 for a full cost refinance, and can be rolled into the existing loan amount or can be paid at the closing."
DePaepe notes that "based on a 740 credit score on a single-family home for instance, the borrower would qualify for the DU Refi Plus or Open Access program on a 30-year fixed rate at 4.375 percent in the past week."
For more information, contact your current lender, or you can reach Christine DePaepe at firstname.lastname@example.org.
But keep in mind that these programs, if you qualify, require a reasonable credit score (at least 620) and a good payment history on your current mortgage. Still, it's good to know that there is help available for people who have kept paying on time, even as home values have dropped.
Terry Savage is a registered investment adviser. Post questions on Terry's blog, terrysav age.com, and at suntimes.com/savage.