What does a 0.5% mortgage refinance fee mean for you?
The Federal Housing Finance Agency’s 0.5% “adverse market” fee on most mortgage refinances is now in place.
If you’re in the process of refinancing, it’s probably already been priced into your rate. If you’re thinking about refinancing, it means your loan will be a little more expensive than it would have a few months ago.
But with mortgage rates still near all-time lows, the fee may not be the end of savings for many borrowers
Now that it’s being implemented, here’s everything you need to know.
Who will be charged the fee? How are lenders applying the fee?
For most borrowers, the charge will come in the form of an extra cost at closing or a higher interest rate on the new mortgage.
On a $250,000 loan, the fee would be $1,250. Bankrate’s chief financial analyst Greg McBride has recommended that most borrowers pay the fee up front if they can afford to. Otherwise, it will be charged through a higher interest rate or larger principal loan balance, which will wind up costing you more money over time.
All that makes it even more important to shop around before you settle on a lender for your refi.
“This added fee will be a detriment to housing affordability at a time when home prices have been rising in many areas of the country,” said Mark Hamrick, Bankrate’s senior economic analyst. “There’s a reason why we constantly advise that people shop around for the best rates. By finding the lowest possible interest rate, one will help ensure they’re not overpaying for a home loan.”
Why does the refinance fee exist?
Can I avoid the fee?
Possibly.
If you keep your. loan amount below the $125,000 threshold, or above the jumbo mortgage minimums, you won’t get charged. You can also try to find a financial institution, like a portfolio lender, that doesn’t plan to sell your loan to Fannie or Freddie, so they won’t have to pay the fee. And, you can look for programs that are exempt from the fee, like the VA and FHA loans mentioned previously.
But, in the grand scheme of things, it may not be worth the hassle. Even with the fee priced in, mortgage rates remain very low, and if you have an existing loan with high interest you still stand to save even after accounting for this extra cost.
The short answer is: almost all refinancers.
The fee will be levied on every mortgage refi valued at $125,000 or more for loans that are ultimately sold to mortgage giants Fannie Mae and Freddie Mac. Those two companies are responsible for servicing two-thirds of American mortgages, so practically speaking, most lenders will likely price all loans so they’re eligible to be sold.
But there are a few exceptions. Jumbo mortgages — home loans with a value of $510,400 or more in most parts of the United States, or $765,600 or more in more expensive areas — The FHFA refinance fee are not eligible to be sold is here, and it’s likely here to Fannie and Freddie, so Mark Calabria, directo stay. Mortgage refinancthose high-dollar borrowtor of the Federal Housing ing is usually a lengthy ers won’t have the fee. VA Finance Agency, said at process with a number of and FHA loans also will be a conference earlier this costs on the road to closing.exempt.fallthatthenewchargeis meant to stabilize FredFor most borrowers, die Mac and Fannie Mae’s this fee will be a nuisance, finances after borrowers and may delay your got $6 billion worth of break-even for savings assistance thanks to coroafter you refinance, but navirus protections. it shouldn’t be a make
It’s unclear, though, or-break factor for most how destabilizing that aid homeowners. was compared to their Our advice is to shop for combined $5.7 trillion loan the best rate and terms, portfolios. regardless of the fee.
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