Here's how the new mortgage refinance fee affects you

Coronavirus had a profound effect on American finances. The Bureau of Labor Statistics estimates that over 11 million people are still unemployed. Given those numbers, the Fed has slashed interest rates multiple times in an effort to stimulate the economy, which has led to a boom in mortgage refinance requests.

In response to the landslide of refinancing applications, the Federal Housing Finance Agency (FHFA), the organization which oversees Fannie Mae and Freddie Mac — the two largest buyers of mortgages in the U.S. — announced it would start charging a new refinance fee on Dec. 1 that will be sold to the two government-sponsored enterprises (GSEs).

Although this fee is technically being charged to mortgage refi servicers, it will most likely be passed on to mortgage borrowers who want to take advantage of the record low refi rates. Keep reading to learn more about the refinance fee and what it means for those who want to take advantage of today's low loan rates.

What is the new mortgage refinance fee?

At its core, the new “adverse market fee” is an additional 0.5% fee that will be charged to mortgage refi servicers on certain loans that they plan to sell to Fannie Mae or Freddie Mac. Right now, this fee only applies to conventional refinance loans with balances greater than $125,000, meaning that new home buyers and those with non-conforming loans will not be affected.

Talking to an experienced loan officer or financial advisor can help you get all of your most pressing questions about refinancing answered so you can make an informed decision about whether to move ahead. If you’ve determined that a mortgage refinance makes sense, remember to compare rates online to find the right lender for your needs and budget.

HOW TO REFINANCE YOUR MORTGAGE

How does the new refinance fee affect homeowners?

For the most part, borrowers can expect the banks will pass this fee on to them in exchange for helping them capitalize on the current low refinance rates. Unfortunately, that means refinancing will be more expensive. However, instead of paying the fee directly as an addition to your closing costs, you'll likely see it in the form of higher interest rates.

HOW REFINANCING YOUR HOME CAN PUT MONEY BACK IN YOUR POCKET

Regardless of whether you think your loan will be subject to extra fees, it's always important to make sure the math on a refinance makes sense. As a rule of thumb, there should be at least a full percentage point between the interest rate that you have currently and your refinance rate. If that's the case, there's a good chance that the amount that you stand to save will outweigh the cost of any additional mortgage fees.

THE BASICS OF NO-CLOSING COST MORTGAGE REFINANCING

Who's exempt from this new refinance fee?

It's important to note that not all mortgage refis will be subject to the new fee. Instead, it will primarily affect conventional refinances.

The following are exempt from this new fee:

• Anyone with a government-backed loan like an FHA loan or VA loan
• Those with jumbo loans or portfolio loans
• Those who owe less than $125,000 on your home
• Those in the low-income housing refinance market

REFINANCE YOUR HOME BEFORE RECORD LOW RATES DISAPPEAR

Is it worth refinancing my home right now?

These new mortgage refinance fees are meant to offset an estimated $6 billion in losses that the FHFA has sustained during the course of the pandemic. The losses are a result of having a high percentage of mortgages in current forbearance and in anticipation of a higher default rate.

Though the new adverse market fee might end up having an impact on the interest rate that you are given when you go to apply for a new loan, it's important to remember that mortgage rates aren't the only thing to consider when deciding whether to refinance. In particular, you also need to think about how long you plan to stay in the home.

Remember, with a refinance mortgage, you still have to pay closing costs. With that in mind, you should plan to stay in your home at least long enough for the savings from your new interest rate to cover the upfront cost of taking out the new loan. Otherwise, refinancing it's not worth it, no matter how low rates are at the moment.

THE BEST (AND WORST) REASONS TO REFINANCE YOUR MORTGAGE