Mortgage

Refinancing grew to become much more costly because of this new payment

A new FHFA fee has increased your hoped for refinancing rate

The Federal Housing Agency (FHFA) just announced a hefty new fee for refinancing mortgages.

The Adverse Market Refinance Fee is a fee of 0.5% – or USD 500 per USD 100,000 loaned almost all conventional refinancing.

Lenders are responsible for the fee but already pass it on to applicant refinancing.

Most refinance homeowners don't pay the fee out of pocket, but instead take a higher rate. How much higher? Read on to find out.

If you are considering refinancing, here is information about the new fee and some options to avoid it.

Find and Lock a Low Refinance Rate (Aug 21, 2020)

How much higher will the refinancing rates be?

Note: The new fee only applies to current homeowners planning to refinance and who had not set a refinance rate prior to the FHFA announcement on August 12, 2020. Those who buy a home are not affected.

The reverse market refinancing fee must be paid by the lenders on every refi loan sold to Fannie Mae or Freddie Mac (the companies regulated by the FHFA). Fannie and Freddie buy more than half of all mortgages.

The fee does not officially apply until September 1st. However, it takes weeks for the lenders to grant Fannie Mae or Freddie Mac a closed-end loan. As a result, lenders have already started adding the fee to most unlocked loans – even those that were already in processing but not blocked.

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

To what extent does the negative market fee affect refinancing rates?

One company estimates that interest rates could rise 0.375% or more.

One company estimates that refinancing rates could increase by 0.375% or more.

To put that in perspective: The 30-year rates have fallen by almost a full percentage point since the beginning of 2020. And rates are down more than 2% from their most recent high in 2018.

Even if refinancing rates go up due to the new regime, they are still incredibly low compared to recent history.

Also, some experts estimate that the new fee will only increase rates by 0.125%. The 2.875% rate you've dreamed of has likely increased to 3.0% – at least.

It is not a welcome time for higher prices. Millions of families are working on tight budgets due to COVID. An inexpensive refinancing is vital for many homeowners.

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

Find and Lock a Low Refinance Rate (Aug 21, 2020)

How the negative market fee could affect refinancing savings

Look at an example.

Imagine buying a home for $ 300,000 about a year ago. You paid a 10% deposit and received 4% interest.

This is what your mortgage refinance could look like with and without the new FHFA fee.

Without the adverse market fee
With the negative market fee

Credit balance
$ 265,000
Current 30-year rate
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

* The prices and payments shown are for example purposes only. Your own refinancing rate and payment will vary. Check today's prices here.

In this example, if you refinance with the new fee, you will still receive a lower monthly payment than the original mortgage.

But the homeowner pays more interest over 30 years than without refinancing.

And you save just $ 170 per month with the fee versus $ 230 without the fee.

In some cases, the new reverse market refinancing fee could discourage even minor borrowers from refinancing as their debt to income ratio will be too high due to the new burden.

"This is very disappointing and the absolutely wrong policy at the wrong time," said Vince Malta, president of the National Association of Realtors.

Malta said the new fee "could cost homeowners thousands of dollars, destabilizing the market and taking away opportunities".

This will avoid the new adverse market refinancing fee

Fannie Mae and Freddie Mac are buying a large number of mortgages, which means their new fee will have far-reaching implications.

However, there are still ways to avoid the fee – and the higher interest rate – when refinancing.

Portfolio Loans – The best choice of many refinancers. These are mortgages taken out by banks that are either held or sold to private investors instead of being sold to Fannie Mae or Freddie Mac. Since portfolio loans are not purchased from Freddie or Fannie, the 0.5% fee is not applied. The downside is that portfolio loans tend to come primarily with higher interest ratesJumbo Loans – There is also no new charge for more than $ 510,400 in most areasGovernment sponsored loans – The same goes for government-secured mortgages, including FHA, VA and USDA loans

However, FHA and USDA loans are still mortgage insured. If you currently have a traditional loan with no PMI, refinancing into one of these loans is likely not your best bet.

As always, do your research to find the best type of loan and lowest interest rate for you.

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

Check your refinancing eligibility (August 21, 2020)

Background information on the refinancing fee for the adverse market

Coronavirus has seriously destabilized the mortgage market.

With borrowers laid off and job stability at stake for many, lending has become a particularly risky prospect.

The new reverse market refinancing fee is just one more in a long series of steps taken by mortgage regulators to create additional financial cushion and reduce risk in these uncertain times.

Unfortunately, the FHFA's recent move could cost borrowers.

"When Fannie Mae and Freddie Mac have to charge a 0.5% fee on the refinancing mortgages they purchase, it increases the interest rates for families who want to make ends meet during these challenging times," said Bob Broeksmit, President and CEO of Mortgage Bankers Association (MBA). .

"This means the average consumer is paying $ 1,400 more than they would have otherwise," says Broeksmit.

"Worse, the September 1st Effective Date means thousands of borrowers who have not set their interest rates can experience unexpected cost spikes just days after closing."

Find and Lock a Low Refinance Rate (Aug 21, 2020)

Conflict over the new refinancing policy of the FHFA

The new refinancing fee is an additional cost if the government tries to cut borrowing costs as well.

For example, the Federal Reserve spends $ 40 billion a month on agency mortgage-backed securities "to cut the cost of buying or refinancing a home and stimulate the economy," according to a joint statement from industry leaders.

"This action by the GSEs," they say, "adds to these costs and contradicts and undermines Fed policy."

Such political conflicts can be a big deal on Capitol Hill and give opponents of the new fee reasons a chance to reverse them. And with elections coming up in a few months, future policy changes are not unthinkable.

Low refinancing rates are still available

Even with the new fee, many homeowners will be able to find low refinance rates.

Keep in mind that mortgage rates have broken records several times over the past few months. And they will stay low all year round.

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

Check your new plan (August 21, 2020)

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