Thinking About Refinancing? Act Now—Or Prepare To Pay More

If refinancing your mortgage was even slightly on your radar, you may want to act fast, because come September 1, it’s going to be a lot more expensive.

That’s because mortgage purchasers Fannie Mae and Freddie Mac plan to start charging lenders an “adverse-market” fee—both on traditional refinance loans and cash-out refinance—once the new month rolls around.

Though the fee will technically be collected from the mortgage lenders originating the refinances, according to the Mortgage Bankers Association, it will almost certainly lead to higher interest rates for borrowers.

As Holden Lewis, NerdWallet’s home and mortgage specialist, puts it, “The new fee on mortgage refinance is going to sting.”

He’s not kidding either. The 0.5% fee might not seem huge on its surface, but when you look at home prices, it amounts to quite a bit for the average household. According to the National Association of Realtors, the median home price in the second quarter of the year was just over $291,000. On a loan of that size, the new fee would amount to nearly $1,500.

That’s a hefty price to pay with many homeowners already struggling. According to MBA, almost 4 million homeowners are currently on a forbearance plan, unable to make their mortgage payments. Another large swath is moving to refinance—taking advantage of record-low interest rates to lower their monthly payments and stay financially afloat. 

Just last week, refinancing activity was up 47% over the year. Nearly two-thirds of all loans originated were refinances.

“The recent refinance activity has not only helped homeowners lower their monthly payments, but it is also reducing risk to [Fannie and Freddie] and taxpayers,” MBA said in a statement. “This announcement is bad for our nation’s homeowners and the nascent economic recovery.”

According to Freddie Mac, the new fee is a risk management move, meant to offset forecasted losses due to the pandemic and “economic and market uncertainty.”