By Pat Mertz Esswein

If the value of your home is less than you owe
on your mortgage, refinancing to take advantage of today’s low interest rates –
recently 3.7% on a 30-year fixed-rate loan – may seem out of reach. But if
you’re up-to-date on your mortgage payments, you may be able to refinance
through one of two programs. Lenders participate voluntarily and can adapt the
terms, so there’s no guarantee you’ll qualify. But you won’t know until you
call your lender.

If you want help (it’s free) before you make that call, consult a housing
counselor approved by the Department of Housing and Urban Development (call
888-995-4673).

With the Home Affordable Refinance Program (HARP), you can refinance to a lower
rate and payment or a shorter term. Many more borrowers have refinanced through
the program since the upper limit for the loan-to-value ratio (the loan balance
divided by the market value of the home) was eliminated. However, some lenders
still impose a loan-to-value limit of 150%, says Keith Gumbinger, with HSH.com,
a mortgage-tracking firm.

To qualify, you must have no late payments for the past six months and no more
than one late payment in the past 12 months. Also, Fannie Mae or Freddie Mac
must have owned your existing mortgage prior to June 1, 2009. (To check your
mortgage, go to www.fanniemae.com/loanlookup or call 800-732-6643. Also
try www.freddiemac.com/mymortgage
or call 800-373-3343.) Lenders may charge you a slightly higher interest rate
than for a “regular” refinancing — say, one-fourth percentage point
more. You’ll pay closing costs just as you would with any refi.

If you have an FHA mortgage, you can reduce your monthly payment or switch from
an adjustable rate to a fixed rate with Streamline FHA.
You must have had your current FHA loan for at least 210 days and have made at
least six payments. If you’ve had the loan a year or less, you can’t have any
late payments on your record. The refi must reduce your monthly payment
(principal, interest and mortgage insurance) by at least 5%. No appraisal or
verification of employment, income or credit score is required.