Mortgage interest rates vary widely, ranging from a historical high of 18.63% in October 1981 to a historical low of 2.77% in August 2021 for a 30-year, fixed-rate mortgage. Taking advantage of lower interest rates is one of the primary reasons people refinance their homes. However, if you worry that you owe more than your home’s value, you may still have options.

Reasons To Refinance Your Home

Refinancing your home for a lower interest rate can significantly reduce your mortgage payments. It may also reduce the overall cost of purchasing your house when you stay in your home long enough to recover refinancing closing costs.

When interest rates are low enough, it may make sense to refinance to reduce your loan term. You may be able to do so without much change to your monthly mortgage payments. Similarly, refinancing to switch from a fixed-rate to an adjustable-rate mortgage is sometimes desirable.

Another reason people often refinance is to provide relief from monthly bills. Refinancing reduces the monthly mortgage payment, which can alleviate some burdens for those struggling to cover their monthly costs. Some people choose to refinance to obtain funds to pay off credit cards and higher-interest loans, or to cover educational expenses.

Requirements for Refinancing Your Home

If you have a conventional loan, traditional refinancing programs only allow a refinance with ~10% equity - which is the same as 90% LTV - meaning that your home is worth more than you owe on your first mortgage. Some lenders require you to have as high as 20%. Equity is the value of your home minus the amount you still owe on your first mortgage.

To refinance, you must make enough payments to reduce your loan payoff amount to a level that is up to 20% lower than the loan's value. If you haven’t, you can either pay a lump sum to bring your equity up to the required level or put off refinancing through standard means until you have enough equity.

Options for Refinancing Your Home

The first option for refinancing is to go through the standard process with a traditional lender. Even if you think you don’t have enough equity, it’s worth looking into. Just as interest rates fluctuate, so, too, do housing market values.

Between April 2021 and April 2022, average home values increased by 20.39%, according to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index. This kind of home value increase can open refinancing opportunities for many who would not have previously qualified. If you are still upside down on your loan or don’t have enough equity and would like to lower your mortgage payments, you may be eligible for other mortgage relief programs.

Mortgage Relief for Government-Backed Loans

If you have a Federal Housing Administration, Department of Veterans Affairs, or U.S. Department of Agriculture loan, you may be able to lower your interest rates and mortgage payments even without having the equity that standard loans require for refinancing. All three federal loan programs offer a Streamline Refinance option.

This program allows those with an FHA, VA, or USDA loan to refinance their homes. General eligibility requirements for the program include the following:

• You want to refinance your government-backed mortgage

• Your loan is not delinquent

• You live in the home you want to refinance

The process for obtaining a new loan to lower your rates is quick, giving you relief without a long wait. There are variations between the three loan types in the eligibility requirements and the benefits streamlining offers.

Freddie Mac and Fannie Mae Relief Options

Fannie Mae’s High LTV refinance option and Freddie Mac’s Enhanced Relief refi program are two programs currently on hold that the companies may reinstate if the need increases. If one of these two companies owns your mortgage, it may be worth keeping an eye out for updates on the reactivation of these relief programs.

HIRO Eligibility

To qualify for Fannie Mae’s HIRO program, your LTV ratio must be higher than allowed through standard refinancing with Fannie Mae. You must not have been delinquent in your mortgage payments for at least the last six months. You also can’t have a loan that originated before October 1, 2017, though your current loan must be at least 15 months old.

FMEER Eligibility

Eligibility for FMEER is similar to the requirements for HIRO. The primary difference is that your loan can’t have an origination date before November 1, 2018.

Mortgage Forbearance Options

If you have a government-backed loan or a Freddie Mac or Fannie Mae loan and you don’t qualify for refinancing because you are falling behind in your loan payments, you may be able to negotiate a loan forbearance. Forbearance allows you to reduce your monthly mortgage payments or hold off on paying them altogether for an agreed-upon period. Though unusual, it is possible to receive a forbearance for up to 18 months.

Other loan servicers may also be willing to work with borrowers to offer mortgage relief. If you don’t qualify for any form of refinancing and are having difficulty making your mortgage payments, it may be worth talking to your lender. You may be able to negotiate lower payments while you get back on your feet.

Mortgage Relief and Refinancing FAQs

If you have questions about mortgage relief or refinancing, you aren’t alone. Here are a few of the most frequently asked questions on these topics.

Can I Refinance My Home if I Am Upside Down on My Mortgage?

You cannot refinance an upside-down mortgage under standard refinancing programs. However, if you have a loan backed by the FHA, VA, or USDA, you may be eligible for their Streamline Refinance programs.

What Are the Benefits of Refinancing?

Refinancing your home may lower your monthly mortgage payments. If you stay in your home long enough, it may also reduce the overall costs of buying your house.

Is There Mortgage Relief if I Am Falling Behind on My Payments?

If you struggle to make your monthly payments due to unexpected financial hardship, you may be able to negotiate temporarily paying a lower amount. If Fannie Mae or Freddie Mac owns your loans or you have a government-backed mortgage, you can negotiate payment reductions or pause your payments for up to 18 months.

When you need mortgage relief, there are several options to consider. Use these tips as your guide.