Refinancing has become more expensive thanks to these new fees

Editor’s Note: The 0.5% refinancing fee discussed in this article was originally scheduled to be rolled out on September 1, 2020. But on August 25, The FHFA has announced that it will delay the deployment of the new fees until December 1, 2020. This article will remain on the site for archival purposes.

A new FHFA commission has increased your expected refinancing rate

The Federal Housing Finance Agency (FHFA) has just announced new high fees for mortgage refinancing.

The “ Adverse Market Refinance Fee ” is a fee of 0.5% – or $ 500 for every $ 100,000 borrowed – on almost all conventional refinancing.

Lenders are responsible for the fees, but they are already passing them on to refinance seekers.

Most refinancing homeowners will not pay the fees out of pocket, but will take a higher rate instead. How much higher? Keep reading to find out.

If you’re considering refinancing, here’s what you need to know about the new fees and some options to avoid them.

Find and Lock in a Low Refinance Rate (May 14, 2021)

How much higher will the refinance rates be?

Note: The new fees only apply to current homeowners who are considering refinancing and who had not locked in a refinance rate before the FHFA announced on August 12, 2020. Those who purchase a home will not be affected.

Adverse market refinancing fees must be paid by lenders, on any refi loan sold to Fannie Mae or Freddie Mac (the entities overseen by the FHFA). Fannie and Freddie buy more than half of all mortgages.

Fees do not officially apply until September 1. However, it takes weeks for lenders to issue a closed loan to Fannie Mae or Freddie Mac. So lenders have already started including fees in most unlocked loans – even those that were already outstanding but not locked.

The higher fees for lenders are usually passed on to borrowers in the form of higher rates.

So how will adverse market charges affect refinance rates?

A company estimates that rates could rise by 0.375% or more.

One company estimates refinancing rates could climb 0.375% or more.

To put this in perspective, Prices 30 years have fallen almost a percentage point since the start of 2020. And rates are down more than 2% from their recent high in 2018.

So even if the refinance rates go up as a result of the new rule, they will still be incredibly low compared to recent history.

In addition, some experts estimate that the new fees will only increase rates by 0.125%. So the 2.875% rate you were dreaming of probably rose to 3.0% – at least.

This is not a welcome time for higher rates. Millions of families are working on tight budgets due to COVID. Low cost refinancing is crucial for many homeowners.

For some, even a marginal rate hike could push them out of the refinancing eligibility zone.

Find and Lock in a Low Refinance Rate (May 14, 2021)

How Adverse Market Charges Could Affect Refinancing Economies

Take a look at an example.

Imagine you bought a house for $ 300,000 about a year ago. You made a 10% down payment and got a 4% interest rate.

Here’s what your mortgage refinance could look like with and without the new FHFA fees.

Without unfavorable market charges With unfavorable market charges
Loan balance $ 265,000
Current rate over 30 years 4.0%
Current monthly payment $ 1,400
Refinancing rate 3.25% 3.625%
New monthly payment $ 1,170 $ 1,230
Total interest over 30 years $ 152,400 $ 172,600

* Rates and payments shown are indicative only. Your own refinance rate and payment will vary. Consult the prices of the day here.

In this example, refinancing with the new fees still gives you a lower monthly payment than the original mortgage.

But the owner ends up paying After interest over 30 years than they would have had if they had not refinanced.

And they only save $ 170 per month with fees, compared to $ 230 without fees.

In some cases, the new unfavorable market refinancing fees could even prevent marginal borrowers from refinancing because their debt to income ratio will be too high due to the new load.

“It’s very disappointing, and it’s the wrong policy at the wrong time”, says Vince Malta, President of the National Association of Real Estate Agents.

Malta explained that the new fees “could cost owners thousands of dollars, destabilizing the market and taking away opportunities for them”.

How to Avoid New Unfavorable Market Refinance Fees

Fannie Mae and Freddie Mac buy a large number of mortgages, which means their new fees will have a huge impact.

But there are still ways to avoid the fees – and the higher rate – when you refinance.

  1. Portfolio loans – The best bet of many refinancers. These are mortgages that banks create and hold or sell to private investors, rather than selling them to Fannie Mae or Freddie Mac. Since portfolio loans are not purchased by Freddie or Fannie, the 0.5% fee will not apply. The downside is that portfolio loans usually come with higher rates in the first place.
  2. Jumbo Loans – Anything over $ 548,250 in most regions will also not be subject to the new fees
  3. Government guaranteed loans – The same goes for government guaranteed mortgages including FHA, VA and USDA loans

However, FHA and USDA loans have ongoing mortgage insurance. So if you currently have a conventional loan without PMI, refinancing to one of these probably won’t be your best bet.

As always, shop around for the best type of loan and the lowest rate for you.

If you’re not sure what to look for, try working with an independent mortgage broker who can break down rates and fees to find the best option for you.

Check your eligibility for refinancing (May 14, 2021)

Unfavorable Market Refinancing Fee Background

The coronavirus has seriously destabilized the mortgage market.

With borrowers being made redundant and job stability at stake for many, loans have become an extremely risky prospect.

The new Adverse Market Refinance Fee is just another in a long series of moves by mortgage regulators designed to add an additional financial cushion and reduce risk in these uncertain times.

But unfortunately, the recent FHFA decision could come at a cost to borrowers.

“Requiring Fannie Mae and Freddie Mac to charge 0.5% refinancing fees on the mortgages they buy will raise interest rates for families trying to make ends meet in these tough times.” says Bob Broeksmit, President and CEO of the Mortgage Bankers Association (MBA).

“This means the average consumer will pay $ 1,400 more than they otherwise would have paid,” says Broeksmit.

“Worse yet, the September 1 effective date means that thousands of borrowers who haven’t locked their rates could face unanticipated cost increases just days after closing.”

Find and Lock in a Low Refinance Rate (May 14, 2021)

Conflict over the new FHFA refinancing policy

The new refinancing charge is an additional cost just as the government is also trying to reduce loan spending.

For example, the Federal Reserve spends $ 40 billion per month on the agency securities backed by mortgages “To help lower the cost of buying or refinancing a home and boost the economy as a whole,” according to one joint statement from industry leaders.

“This action by GSEs,” they say, “increases those costs, contradicting and undermining Fed policy.”

Such policy conflicts can be a big deal on Capitol Hill, giving opponents new grounds for fees to have them overturned. And with an election coming up in a few months, future policy changes are not unthinkable.

Low refinancing rates are still available

Even with the new fees, it will still be possible for many homeowners to find low refinance rates.

Remember that mortgage rates have set new records more than once in recent months. And they should stay low all year round.

As always, the trick is to find a lender offering the best refinance rates for your situation.

Check your new rate (May 14, 2021)

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