NEW YORK
The new federal Making Home Affordable program comes as welcome relief for homeowners struggling with mortgage payments.
The program, which will let people refinance or modify their mortgages, is expected to help millions of Americans lower monthly payments and avoid foreclosure. So what strings are attached?
You might be concerned about the effect on your credit report or the tax implications, for instance. Others who are still paying low introductory rates might fear that their monthly bills could skyrocket.
Here are some questions and answers on concerns people might have about the program.
Q. How will my credit profile be affected?
A. Refinancing generally doesn't affect your score since it's simply a rewritten mortgage, according to Norm Magnuson of the Consumer Data Industry Association, a trade group in Washington. This is especially true of refinancing under the federal program, since one of the terms of eligibility is that homeowners can't have missed a payment in the past year.
It's not yet clear what effect a federal loan modification -- an adjustment to terms of an existing mortgage, rather than a new one -- will have on credit profiles, however, Magnuson said. Regulators haven't yet determined how the loan modifications will be reported, if at all.
If you are applying for a loan modification under Making Home Affordable, it means that you have already missed payments and hurt your credit profile. A loan modification should improve your credit profile in the long run since the idea is to get you on track for meeting payments.
It might also free up money to pay off other debts.
Q. Is it possible my payments will be higher?
A. If you are still paying a low, introductory rate, it is possible that your monthly mortgage payment will increase slightly under the federal refinancing program. But the idea is to avoid the big spikes in interest rates that typically come with adjustable-rate mortgages. After applying for the Making Home Affordable program, your lender should give you a "good-faith estimate" that includes your new interest rate, mortgage payment and the total cost of the loan. Compare the numbers with your current loan; you might decide that refinancing isn't an improvement. You can also check out the payment-reduction estimator on the government's Web site at www.makinghomeaffordable.gov.
Q. Should I wait to see if mortgage-interest rates come down in a couple of months before applying?
A. Probably not, since mortgage rates are at historic lows.
Last week, rates on 30-year mortgages inched upward to 4.87 percent, but that's still close to the lowest level in decades. Waiting for the rate to go any lower might backfire, said Ken Inadomi, the director of the New York Mortgage Coalition.
In case you decide to wait: The Making Home Affordable program will expire June 10, 2010.
Q. What are the tax implications?
A. Charges for refinancing a mortgage are tax deductible. The total cost should be evenly divided to be deducted over the life of the mortgage, Inadomi said. Other costs, such as attorney or appraisal fees, are not deductible. You will also have to adjust your mortgage-interest deduction if you get a lower rate.
Q. Can I try to refinance or modify my mortgage on my own, without going through the program?
A. Working directly with a lender shouldn't be a problem if you think that you are not eligible for the federal program. Just beware of getting a third party involved, especially if they ask for an upfront fee.
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