Now Is A Great Time To Refinance Your Mortgage – New Refinance Fees Delayed Until December 1st

Two weeks ago, both Freddie Mac and Fannie Mae

FNMA
announced a new mortgage refinancing fee of 0.5%. The new fee was scheduled to start on September 1, 2020. However, yesterday, Fannie Mae and Freddie Mac both announced the new fee will be delayed until December 1, 2020.

This gives homebuyers an additional three months to refinance their mortgage without having to pay this fee. Keep in mind, however, that most mortgage refinances take anywhere from 30-45 days to close. So you should start the process in the next six weeks or so in order to be able to close before the new fees take effect.

Why the New Mortgage Refinance Fee?

In short, the new fees are directly related to the risk and uncertainty from the Covid-19 pandemic and the resulting under- and unemployment experienced by millions of workers.

Fannie Mae released a statement in Lender Letter (LL-2020-12), which states the new fee is a loan-level price adjustment (LLPA) called an Adverse Market Refinance Fee. The new fee is a result of “market and economic uncertainty resulting in higher risk and costs incurred by Fannie Mae.”

Freddie Mac calls their new program the Market Condition Credit Fee in Price that was implemented “as a result of risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty.”

Here is the new announcement from Freddie Mac.

This is not the first time these agencies have instituted risk-based mortgage refinance fees. These agencies instituted similar refinance fees in 2008.

Which Types of Mortgage Refinances Do the New Fees Apply To?

These new fees will be applied to most conventional mortgage refinances and will be applied both cash-out and no-cash out refinances. There are some exceptions, such as some forms of construction conversion mortgages.

Many mortgage refinances under specialty loan programs will also be subjected to these new fees, even if the programs would normally have a cap on total fees. Examples include the HomeReady refinance program from Fannie Mae and the Home Possible mortgage refinance program from Freddie Mac.

The new fee does not apply to home purchases or mortgage refinances not sold to Freddie Mac or Fannie Mae. 

For example, certain types of streamline refinance programs, such as the VA Loan Streamline Refinance or FHA Loan Streamline Refinance programs, may also be exempt from these fees, as many of these loans are backed by Ginnie Mae and are not sold to Fannie Mae or Freddie Mac.

How Much Will These Fees Cost the Average Homeowner?

The fee will add $500 per $100,000 borrowed. According to a statement released by the Mortgage Banking Association, “the average consumer will be paying $1,400 more than they otherwise would have paid.”

If You Are Thinking of Refinancing Your Mortgage – Do it Now

Even though refinancing your mortgage will often save you a lot of money in the long run, it comes with associated closing costs that generally run from 1%-3% of the mortgage. Closing costs generally include a loan origination fee, underwriting fees, discount points if you elect to buy them, state and local fees, and Private Mortgage Insurance (PMI) if you have less than 20% equity in your home.

Adding another 0.5% fee on top of these fees will cost, on average, an extra $1,400, and extend your payback time. 

But you can avoid this additional fee if you start the process in the next few weeks. 

Are you unsure if you should refinance your mortgage? This guide from Forbes can help you.

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