Why Mortgage Refinances Could Soon Cost More

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If you’re thinking of refinancing to lock in a mortgage at a historically low rate, you could have to pay a new 0.5% refinance fee.

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The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, is expected to add an “adverse market refinance fee” Dec. 1 to all refinance loans sold to the federally backed mortgage companies. Fannie Mae and Freddie Mac purchase about 70% of all home loans from lenders.

The fee was set to take effect Sept. 1 but was delayed after many in the mortgage industry voiced opposition to it. According to the FHFA, the fee is necessary to cover at least $6 billion in COVID-19 losses sustained by Fannie and Freddie.

What Is the Fee?

The adverse market refinance fee will add $500 for every $100,000 you borrow. It applies to refinances sold to Fannie Mae and Freddie Mac.

The FHFA tacks on the fee at a time when refinancing is an otherwise money-saving move. Unfortunately, the adverse market refinance fee makes it tougher for homeowners to realize savings from record-low interest rates.

“The additional cost will be reflected in the interest rate, which can be brought down by paying points, and in that case, would translate this fee to be an upfront cost,” says Emanuel Santa-Donato, senior director of capital markets and lead acquisitions for online mortgage lender Better.com.

Who Is Exempt From the Fee?

The fee does not apply to mortgages for newly purchased homes, plus:

  • Borrowers with loan balances of less than $125,000
  • Loans through affordable refinance loan programs, such as Fannie Mae’s HomeReady and Freddie Mac’s Home Possible
  • Certain government-backed loan programs guaranteed by Ginnie Mae rather than Fannie or Freddie

What Should Consumers Do?

If you want to refinance your home this year, apply well before Dec. 1 to avoid the fee.

Try not to zero in on late November as a closing date, if possible. Thanksgiving is Nov. 26, and lenders will need time to get the closing paperwork to Fannie Mae and Freddie Mac before the Dec. 1 deadline.

“You would want to have your loan closed by Nov. 15 at the latest,” Santa-Donato says.



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