Reducing Your Mortgage Interest Rate

Have you ever received a belated gift that was totally unexpected and unsolicited? Two days after Christmas, I received a surprise gift generated by the federal government through its incentives to banks to stimulate the economy by adjusting interest rates on current home loans for qualified borrowers.

When I answered an unknown number on my phone Dec. 27, there was a loan representative from Citibank, my lender on an investment property in Malibu. I heard on the other end of the line that my loan qualified to receive a lower interest rate through a refinance. I was told it was a program to assist borrowers who were current on their mortgage payments. At last, there is a program to benefit a different segment of borrowers—an award, a gift for paying my mortgage payments on time!

This was a real surprise and just seemed too good to be true. My first thought was this is a scam. My next thought was to ask the caller delivering this amazing news to give me his office number, that I wanted to call back to make sure that Citibank would answer the phone. He said, "Ma'am, I have your address, your phone number, and social security number." I still wanted to satisfy myself. I quickly redialed his number, and Citibank did answer the phone.

So, why was I getting this surprise belated Christmas gift through an unsolicited call from my lender offering to lower the monthly interest rate on my investment property loan? According to my loan representative, the Federal Housing Finance Agency recently changed its policies in order to reach more eligible borrowers who could benefit from refinancing their mortgage.

This is not a modification or reduction in principle, there are no provisions for money to be taken out. This is a reduction in my interest rate, which is meant to stimulate the economy. If I could save $400 a month, there was some hope by federal agencies that I would spend that money elsewhere. The truth is, I will be happily paying my bills, not purchasing more.

Due to my positive experience, I encourage all of you to check out the programs at www.makinghomesaffordable.org. Featured on this website are governmental programs that allow borrowers to reduce their interest rates with a very easy application process and lower closing costs. This program originally set to expire in December 2012 has been extended for one more year until Dec. 13, 2013.  Thus, there is time for each of you to research these programs. A list of participating lenders can be found here, as industry participation in the Home Affordable Refinance Program (HARP) is not mandatory. 

According to the website, you may be eligible for a refinance with HARP if you meet the following criteria:

• The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
• The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
• The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
• The current loan-to-value (LTV) ratio must be greater than 80 percent.
• The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months

There is another important real estate related issue that may affect you in 2013 and thereafter. If you are thinking of selling your property, I suggest you sell this year. If you sell any real estate property beginning Jan. 1, 2013, the Obama health care program will impose a 3.8 percent Medicare tax on unearned income on taxpayers, which could apply to proceeds from the sale of single-family homes, townhouses, co-ops, condominiums, and even rental income, depending on your individual circumstances and any capital gains tax exclusions. This could cause middle-income families to pay a new tax they simply can't afford.

Under the new health care bill, all real estate transactions will be subject to a 3.8 percent sales tax. For example, if you sell a $400,000 property, there will be a $15,200 tax. If Congress cannot or does not make any adjustments to the Obama health care program, then I suggest if you foresee a need to sell your property within the next few years, it might serve you well to sell it this year and save yourself some money.

Beverly Taki is a California-licensed real estate broker who has represented clients in Malibu for 22 years. She is a Malibu resident and president/broker of . Taki has earned a certificate in dispute resolution from , specializing in mediation. She can be reached at beverly@beverlytaki.com or 310-456-4843. Her website is beverlytaki.com.