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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Adverse Market Refinance Fee
The Year 2020 has been the best time for the housing market industry. With the mortgage going historical low it has surged the demand for purchase and refinances of homes.
When we say record-low mortgage rates means the best time to refinance your mortgage. It has never been a better time to refinance a home loan.
However, the Federal Housing Finance Agency (FHFA) began charging a mortgage refinance fee starting December 1st, 2020
The 0.5% adverse market refinance fee is imposed on lenders by Fannie Mae and Freddie Mac, and it would percolate to the borrowers when they refinance.
This 0.5% fee, known as the “the adverse market refinance fee“ when added to any new refinanced mortgages could impact the cost of your mortgage.
For a mortgage loan of $280,000, 0.5% of refinancing fees means $1400 extra for the lender when the loan is sold to Fannie or Freddie Mac and this extra cost will be passed on as higher interest rates to the homeowners.
As it takes close to two months to close on a refinance, the borrowers who have closed their loans within the last several weeks of October and November must have already paid this fee.
Because of the Covid-19 pandemic, Fannie Mae and Freddie Mac are experiencing losses of approximately worth $6 billion due to defaults and forbearance and to offset those losses the adverse market refinance fees are introduced.
Initially, it was scheduled to start on September 1st, 2020 but got delayed due to various reasons one of them being to give more time for the industry to be prepared.
About 70% of all home loans are purchase by the two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, from lenders and resell them to investors.
When Fannie Mae was announcing the fee, they explained in a letter stating that since refinance are viewed as a risk because it is just an appraisal and not market value of the property so it was a new loan-level price adjustment because of the market and economic uncertainty.
As this fee is wrapped into the rate they’re being offered by their lenders not many borrowers are worried about the new fees said Chris de la Motte, co-founder, and president at Simplist, an online mortgage marketplace he said it is close to negligible effect on the consumers because the cost is being absorbed by the lenders.
Things to Know About Adverse Market Refinance Fee Before Refinancing
Some borrowers are spared this fee If the borrower’s principal balance is less than $125,000 then they are excused from this fee.
Also, the borrowers who are refinancing a VA loan and FHA loan are exempted. Similarly, if it is a new home loan then they are free from the fees.
Any mortgages that lenders sell to Fannie Mae and Freddie Mac are required to pay. But when you apply for a loan you may not know if your lender intends to sell your mortgage to either GSE.
The Different ways the Lenders Might Charge the New Refinance Fee
Now we know that The FHFA directly charges the fee to lenders and not to borrowers, so the lender can pass the cost on to the borrowers either through rolling the fee into the interest rate or by adding the refinance fees into the closing costs as a one-time fee.
While many lenders have benefitted from both higher margins and higher volumes because of the booming market this year they’re able to absorb the cost and even now offer rates that are at all-time historical lows.
Refinancing Is Still Worthwhile
Many experts feel this fee is not a roadblock to refinancing. According to Freddie Mac, even now the average interest rates on 30-year fixed-rate mortgages are around 2.72%, which is the lowest rate on record.
So by refinancing their mortgage and locking in a lower rate close to 19 million homeowners can save over $300 a month on an average, which is a phenomenal saving, though there is no assurance that the rates will last for long and won’t shoot up soon.
Alan Chang, vice president of title operations at JetClosing said, to help them see how much the loan will cost including the interest rate and closing costs the borrowers should review their loan estimate with their lender.
So they will be able to identify how much can they be saved by refinancing.
Even with the 0.5% fee included the preferred lender can give a quote to the borrowers at any time to better understand how much they can potentially save.
For qualifying for the best interest rate a borrower’s credit score and debt-to-income ratio play a significant role.
Shopping around for a mortgage is always beneficial, since many lenders are in the mortgage space today, borrowers have the major advantage of lenders competing for their business.
The Fee Might Not Last
There is no fixed time as to how long the adverse market fee will stay. So if you are eager to know when will the FHFA lift the fee? Most experts today are unsure, it could take a few years or longer.
So the advice here is to make hay while the sun shines!
According to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey, this new refinance fee is not driving away borrowers wanting to refinance, because mortgage refinances applications are rising.
Refinance applications in the week of November 20 had jumped 5% from the previous week and were 79% higher than this time a year ago.
Once a (Covid-19) vaccine has been widely distributed, it would be difficult to know how things will shape out. De la Motte said, in regards to the life of the adverse market refinance fees.
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