The Federal Housing Finance Agency “adverse market” half percent fee on a majority of mortgage refinances officially went into effect on December 1, 2020.

For those already in the process of refinancing this fee has been built into your refinance rate. If you are considering a refinance, it is wise to be prepared for it to cost a little more than it would have just a few months. Due to the fact that mortgage rates are still at historic lows, refinancing with this fee can still mean significant savings for borrowers.

Here is What Borrowers Should Now About This New FeeWhat Does the New Refinance Fee Mean for Borrowers?

Who is Going to be Charged?

Nearly every applicant that applies for a refinance will pay this new fee. Every mortgage of $125,00 and above that will be sold to mortgage giants Fannie Mae or Freddie Mac will incur the new refinance fee. These two companies service two-thirds of American mortgages. This means that most lenders will go ahead and include this fee in your loan to make them eligible to be sold to Fannie Mae and Freddie Mac.

There are some exceptions to this fee rule. Jumbo mortgages, which are loans above $510,400 or $765,600 in more expensive real estate markets, are not eligible to be sold to Fannie Mae and Freddie Mac. Jumbo loans will not incur the new mortgage refinance fee. VA and FHA loans are another exception, as they are exempt from the fee.

How the Fee is Applied

For the majority of borrowers that will pay the fee, it will be seen in the form of an extra cost during closing. It can also come in the form of a higher interest rate in the new loan. For a $250,000 loan, for example, this fee would cost a total of $1,250. Many mortgage experts are advising borrowers to pay the fee upfront if possible as putting it in the loan will end up costing more money over time.

This fee makes it even more important for borrowers to shop around for mortgages and look at all of the available options to them. Finding the lowest possible rate will help to counteract the cost of this new fee.

Why the New Fee?

The director of the Federal Housing Finance Agency communicated at a conference in the fall the new fee is meant to help stabilize Freddie and Fannie loans after borrowers received the first round of stimulus help totaling $6 billion as a result of the pandemic.

Avoiding This Fee

You can keep your loan within the exception parameters of borrowing less than $125,000 or over the Jumbo loan amount, as well as looking for a VA or FHA loan. You can also look to borrow money from a lender that does not plan to sell your loan to Fannie or Freddie, like a portfolio lender.

Yes the new fee is a bit of a pain, but in the grand scheme of things, it is a relatively small one that should make very little impact in the overall refinance process. Of course, the best thing to do when getting a new loan is to look in more than one place for the best option.

For more information on refinancing options in Mission Viejo and California please contact me any time. I am a one-stop-shop. I can show you all of your best options with one smooth process.

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