Thinking of Refinancing Your House? Do It ASAP to Avoid a New Fee

published Oct 14, 2020
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This year has been marked by record-high unemployment percentages and record-low interest rates. Even now, as rates threaten to sneak up from their rock bottom numbers, it still costs less than ever to borrow money. This is why so many Americans have been hopping on the refinance train in the hopes of lowering their monthly mortgage payments. But as of December 1st, taking advantage of those lower rates will be just a little bit more expensive, thanks to a new thing called the Adverse Market Refinance Fee.

What is an Adverse Market Refinance Fee? 

Fannie Mae and Freddie Mac are projected to lose $6 billion due to pandemic-related forbearances and defaults. To offset those losses, they’ve announced their intention to charge lenders an Adverse Market Refinance Fee. Any conventional loans that are delivered to them beginning on December 1st will have an additional 0.5 percent fee associated with them, which banks are passing onto borrowers in the form of an additional 0.125 to 0.25 percent bump to their interest rate. “The fee is to help the agencies recoup prior losses from servicing runoff and other market losses,” explains Jeff Greenberg, a loan officer with Guaranteed Rate.

Who will be charged an Adverse Market Refinance Fee? 

Any qualifying loans that will be transferred to Fannie Mae or Freddie Mac for servicing after the Dec. 1 deadline will have the fee included in their pricing. If your loan amount is above $125,000 and below your county’s non-conforming limit, you will be charged, according to Ericka York, a senior mortgage advisor with Fairway Independent Mortgage. “If you are nearing the end of your existing refinance process, you probably won’t have to worry about this new fee. However if you’ve only recently locked in, your loan terms may already have the added fee included,” she says. 

Can you still avoid the fee?

If you haven’t called your bank yet, you’ll want to do it now (as in stop what you’re doing and make the call right now, now). Otherwise, you run the risk of missing your bank’s deadline to lock in rates without the added fee. For York’s bank, that day was Oct. 12, but dates may vary by lender, so shop around before you sign anything. “Fairway Independent Mortgage is doing the fee as a tier to allow for more borrowers to receive the benefit,” she says. “Some companies have put the fee in on all loans moving forward already.” 

Is it still worth it to refinance?

Even with an extra 0.5 percent fee, refinancing your mortgage may still be a worthwhile venture when you consider that for a $200,000 mortgage, that fee only amounts to $1,000. “There are still many reasons to refinance, and this fee will only increase those rates an estimated 0.125 percent,” York says. So, if you think you will be in your home for a while, have seen a rise in equity, or are trying to take out money to pay off debt or remodel, there are still plenty of benefits to refinancing. 

“It’s always best to speak to a mortgage professional and have them do a total cost analysis for you that determines the short and long term savings of your refinance,” York says. “There is a breakeven point for refinancing. So as an example, if the borrower plans to move in a year and will not recoup the cost of the [refinance], it doesn’t make sense for them to do it. If the borrower wants to cash out to pay off higher interest debt—even knowing they are moving—and free up cash flow, it may make sense.” 

Talking to a lender and reviewing your goals and plans for the future will help you both determine if a refinance is the right move for you.