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Mortgage giants Fannie Mae and Freddie Mac “will eliminate the adverse market refinance fee for loan deliveries effective August 1, 2021,” the Federal Housing Finance Agency notes. That means that if you refinance your mortgage now, you won’t be paying that fee, which will likely save you money, experts say. Here’s what you need to know if you want to refinance now, and you can compare today’s best refi rates here.
What was the adverse market refinance fee?
The adverse market refinance fee was a 50-basis point fee that Fannie Mae and Freddie Mac were charging to lenders when they delivered the refinanced mortgages to the two mortgage companies; the fee then often got passed along to borrowers. The fee was instituted because: “When the pandemic brought high unemployment, regulators feared that a foreclosure crisis would follow. The FHFA added a fee on refinances to boost Fannie Mae’s and Freddie Mac’s rainy-day funds so they could afford an increase in foreclosures,” explains NerdWallet’s home and mortgage expert, Holden Lewis.
But a foreclosure crisis didn’t happen: “Just 2% of Fannie Mae and Freddie Mac loans are in forbearance with that number dropping constantly,” explains Greg McBride, chief financial analyst at Bankrate. And now, Frannie and Freddie have revoked the fee, which the FHFA says will “help families reduce their housing costs.” Find the best mortgage refinance rates in your area here.
How much can you save on a refi now that the adverse market refinance fee is going away?
“The removal of the fee is reducing the cost of refinancing for homeowners that have Fannie or Freddie loans above $125,000,” says McBride. He estimates that a borrower refinancing a $300,000 loan will see this either via a ⅛ percentage point lower interest rate, which equates to about $20 per month, or $1,500 less in closing costs. (Some lenders included the 0.5% fee in the closing costs — so on a $300,000 loan, that would mean $1,500 in closing costs — or added it to the loan total, others increased mortgage rates to recoup the fee). “The repeal of the fee will benefit people who refinance into mortgages guaranteed by Fannie Mae and Freddie Mac,” says Lewis. Find the best mortgage refinance rates in your area here.
Should you refinance now?
McBride suggests it’s a tremendous opportunity to refinance and cut monthly payments in a meaningful way, particularly with the cost of so many other things on the rise: “The removal of the FHFA fee makes the math of refinancing even more compelling,” says McBride. And not only can the slashing of the fee could save you money, so can the super low rates being offered now for refinances (you can compare today’s best refi rates here).
Lewis says other reasons to refi are “to shorten the loan term from say, 30 years to 15 years, to pay less interest over time” and “to get rid of FHA mortgage insurance, which can’t be canceled in most cases.” The general rule of thumb, according to Lewis, is that refinancing is worth it if you can reduce your interest rate by three-quarters of a percentage point and you plan to stay in the home for at least a few years to recoup all of the costs associated with a refi. All of these groups may benefit from the cancellation of the refinancing fee, especially since interest rates are at their lowest levels since February. Compare today’s best refi rates here.