•You must have negative home equity (you owe more on your mortgage than your home is worth), but your mortgage cannot exceed 125% of the value of your home.
That rule is no longer in effect, and you can now refi with equity below 100%. I think (though I could be wrong) that there is an 80% LTV floor, though, on the thought that anyone with greater than 20% equity won't need the additional help anyway.
Despite having put down 20% several years ago, my equity is at like 85% now due to falling values, and several banks offered me a refi through the DU Refi Plus program, which is part of HARP. Sadly I closed right AFTER the May 2009 deadline, so I'm still stuck. MMM retired early on the strength of well-timed real estate decisions, but some of us are suffering through negative equity even as we overpay our monthly mortgages.
Their rationale for the May 2009 cutoff was that loans closed after May 2009 had more stringent underwriting and were closed after home prices had finished falling most of the way, which was true in most of the country. Those of us in the PNW, though, saw our values continue to decline for another eight months or so past when everybody else was recovering, just like we saw our values continue to rise for about eight months as the rest of the country was entering the downturn. So sad for us.
But it's not all complainypants and whininess. I can still refi to a 15 yr fixed, I just have to drop an additional 20k or so into principle to hit the 80% LTV ratio to qualify. So now I'm trying to decide if it's worthwhile to pull that 20k out of taxable accounts that are returning like 5% after taxes to lower my mortgage rate from 4.875 to 3.5. At rates that low the loan is virtually free after taxes and inflation, but it hurts to yank 20k out of active production to do it. I might be better off leaving it invested in the market, growing my taxable account to the point where I can just clear the mortgage entirely. The decision is going to turn on my taxable savings rate, and how long it will take to grow that taxable account large enough to pay off the mortgage while carrying the 4.875%, compared to how long it would take after refinancing to a 15yr to get the rate down.
So ultimately I'm facing the same decision as the original poster. How much to pay on the mortgage vs how much to invest? Just keep in mind that you can lower your mortgage rate considerably by going to a 15 year, and if you're already maxing your tax deferred accounts and have extra income to apply to the mortgage then the decision is complicated by the change in rates.
If you're not yet maxing your 401k and Roth IRA, though, I would recommend letting the mortgage ride. The tax advantages of your retirement accounts combined with the tax advantage of deductible mortgage interest make prepaying your mortgage a pretty silly idea for most people until you've hit the IRS limits on your shelters.