As we enter the final few months of 2020, there’s one thing for certain: this year has been a rollercoaster for the economy, the housing market, and just about every aspect of our daily lives.
Nationwide, we’ve seen a hot seller’s market, with sale prices going up and overall inventory remaining low. The good news? Mortgage rates have stayed at an all-time low. So even with the current trends, it’s a great time for buying a new home or refinancing your mortgage.
If you’ve heard about the new and upcoming refinancing fee imposed by the Federal Housing Finance Agency (FHFA), however, you might be wondering how that will affect your plans. Keep reading to learn about what you can expect.
What Is the New Fee, Exactly?
Here’s the gist on the new fee: starting on December 1st of this year, the FHFA will begin imposing a 0.5% refinancing fee on any new refinance mortgage. Known as the Adverse Market Refinance Fee, it was originally supposed to take effect on September 1 — but this was met with a lot of opposition among political leaders, lenders, and consumer interest groups.
As people spoke out about the fee, noting that it would dampen one of the few economic bright spots in our country today, the FHFA postponed the start date to December and added a few exemptions. Under the new guidelines, you can avoid the fee if:
- you lock in your rate prior to December 1,
- your loan amount is below $125,000,
- you’re working with a direct or portfolio lender, or
- you have a jumbo loan or a low-income government-backed mortgage (FHA or VA loans, for example) that doesn’t adhere to typical Fannie Mae or Freddie Mac standards
But, what gives? Why add a refinancing fee for the typical homeowner?
Freddie and Fannie have said the new fee is necessary to protect against risk and losses during a tumultuous economic time, as well as to help pay for various forbearance programs and moratoriums on foreclosure and evictions.
With the average 30-year fixed-rate mortgage lingering around 3% APR since the spring, some argue that the fee makes for an easy target as many homeowners look to lower their monthly mortgage payments via refinancing. Mortgage software giant Ellie Mae reported that refinancing accounted for a whopping 65% of their closed loans in May, compared to a low 32% in May 2019.
How Will the Fee Affect Homeowners?
As a homeowner, there are a few things you should know right off the bat.
First, there is not a requirement for lenders to pass the fee on to their consumers. Meaning, lenders might choose to eat the cost, given the high profit margins they’ve seen as the refinancing applications keep rolling in. Though we can’t say for certain what will happen (and each lender is free to make that decision individually), it’s still a possibility.
If the lender does opt to charge the consumer, there are a few ways they can incorporate it into the loan:
- It can add it into the loan amount
- They might increase your interest rate
- They can include it as part of your closing costs
Of course, this is in addition to the typical fees associated with refinancing, which include application fees, credit check fees, appraisal or home inspection fees, discharge fees, Lenders Mortgage Insurance (LMI), and state registration fees (where applicable). On average, mortgage refinancing fees are around 2% to 6% of your total loan amount.
That being said, there are still plenty of good reasons to refinance, even if you’re hit with the extra fee. With the record-low rates, the impact on your monthly mortgage could still be significant. The average savings is around $300 a month, which is nothing to sneeze at. (Check out this handy calculator from NerdWallet to estimate your savings.) It’s predicted that the fee might reduce those savings by a mere $15 per month.
Why We Still Recommend Refinancing
Knowing this information, should you still move forward with refinancing?
Our answer is a resounding yes.
The potential for monthly savings is the biggest reason why we still recommend refinancing, even if you’re not able to lock in your rate prior to December. Other benefits include the opportunity to repay your loan faster (by switching from a 30-year to a 15-year, if that’s the right situation for you), removal of your mortgage insurance (if applicable), and the ability to extract equity by opting for a cash-out refinance.
Here are some good tips to keep in mind, though:
- Make sure the time is right. Similar to selecting the right time to buy a new home, make sure you’re set up for refinancing success. If you have a good debt-to-income ratio, a great credit score, and you’re comfortable at your monthly spending levels, it’s worth looking into.
- Shop around. Don’t automatically go with the same lender as your original mortgage, even if you feel like you’re in a rush to get things done before December. Not all lenders charge the same fee, so take your time to shop around.
- Work with an alternative mortgage lender, for better inventory. Rather than acting as the direct lender (like a traditional bank would), mortgage marketplaces like Mortgage Goat act as “middlemen” that connect loan originators to clients. This means that they offer prospective buyers a number of lenders from which they can choose. You then have the flexibility to select a lender with a mortgage rate that best suits their needs and finances.
Refinance with Mortgage Goat
Here at Mortgage Goat, we’re here to help you at every step of the process, whether you’re getting a new mortgage or refinancing a current one. With a great plan in place and a partner like us, you can reduce your monthly mortgage payments so you have more leftover in your pocket. We work with over 100 lenders to secure you the best rate out there, and all you have to do is take a few minutes to fill out our simple, 100% online application.
Ready to learn more? Contact us to start your pre-approval instantly.