Did you receive an interest-rate reduction as part of a Home Affordable Modification Program (HAMP) loan modification in 2009? If so, the lower monthly payment that came along with it might begin a steady increase starting this year and could total as much as $1,724.
The majority of homeowners with HAMP modifications will see their monthly mortgage payments rise from 2014 through 2021, an issue first raised by HSH.com in early January. According to the latest quarterly report from the Special Inspector General of the Troubled Asset Relief Program (SIGTARP), 782,748 homeowners will eventually see their monthly mortgage payments rise by a median value of around $200 a month.
On Feb. 18, 2009, HAMP was introduced as a foreclosure-prevention program designed to help 3 to 4 million homeowners attain more affordable monthly payments. HAMP provided financial incentives to lenders that agreed to lower payments of struggling homeowners through interest rate and/or principal reductions and loan-term extensions.
About 95 percent of HAMP modifications included rate cuts, with some homeowners seeing their rates fall to as low as 2 percent, according to the report.
How the rate-reset works
In an effort to lower monthly mortgage payments to just 31 percent of gross monthly income, interest rates were slashed on HAMP-modified loans to as low as 2 percent for five years, which is why 2009 modifications are seeing their payments rise starting in 2014. After the five years, HAMP guidelines allow interest rates to start rising by a maximum of 1 percent each year until interest rates reach the point where 30-year conforming fixed-rate mortgage were at the time of the modification.
This means that some homeowners might see their interest rates rise on a yearly basis to as high as 5.6 percent. Be sure to utilize a mortgage calculator to determine the difference a higher mortgage rate will make on your monthly payment.