Refinance your mortgage before this new fee goes into effect

If you're looking to save money by refinancing your home — then now is the time.

There are plenty of reasons to refinance, but avoiding an incoming Fannie Mae and Freddie Mac refinancing fee now tops the list. The mortgage companies will start charging an Adverse Market Refinance Fee on December 1, 2020. The new fee, originally slated to begin September 1, adds a .5% charge to all refinance loans. The .5% fee is equal to 50 basis points.

If you're ready to refinance, here's what you need to know about the upcoming fee. Plus, how to avoid fees altogether to lower your monthly payment, cut your current mortgage costs and secure record low refinance rates.

Fannie Mae and Freddie Mac's new fee

Fannie Mae and Freddie Mac announced the additional fee to protect themselves from potential losses on any mortgage refinances they guarantee.

“In light of market and economic uncertainty resulting in higher risk and costs incurred by Fannie Mae, we are implementing a new loan-level price adjustment,” Fannie Mae explained in a Lender Letter.

WHY IT'S A GOOD IDEA TO REFINANCE YOUR MORTGAGE WHILE RATES ARE LOW

Here are some key things you need to know about the extra fee:

• Refinance loans for less than $125,000 are exempt from the added fee.
• This fee is in addition to other price adjustments and fees associated with refinances.
• Fannie Mae and Freddie Mac adjusted the rollout date to December 1.

HOW TO REFINANCE YOUR MORTGAGE

How to get lower loan rates without extra fees

If you’re a homeowner considering a mortgage refinance, you may want to decide quickly. Any loans purchased by Fannie Mae and Freddie Mac after December 1 will incur the additional fee. It can take several weeks or months to process a home refinance application, so starting now will give you the best chance of refinancing your mortgage for less money.

To increase your chances of obtaining the lowest refinance rates, make sure you compare mortgage lenders. Luckily, there are free online tools available that make refinancing your mortgage easy. By entering some simple information, you can pre-qualify in minutes.

HOW TO LAND THE BEST MORTGAGE REFINANCE PRICE

While .5 percent may not sound like a lot, it can add up to several thousand dollars, depending on the size of your loan.

For example: A $250,000 refinance would cost an additional $1,250 and a refinance on a $400,000 loan would cost an extra $2,000. You can roll the fee into your new loan. To get specific numbers for your situation, use an online mortgage loan calculator to determine new monthly costs and see if it makes sense to refinance.

What are today’s mortgage rates?

At the time of publication, the average interest rate for a 30-year fixed-rate home loan is 2.9%. The average 15-year fixed-rate mortgage interest rate is 2.4%. Rates for both the 30-year fixed and 15-year fixed are significantly lower than the same time last year.

Today, it may be easier to snag a lower interest rate (interest rates are at unprecedented lows). If you’re considering a refinance, act now. You can research multiple lenders and get prequalified for refinance rates using online tools. Get loan estimates now via Credible.

Again, a loan calculator can help you crunch the numbers to determine if the cost of refinancing is worth it. There are plenty of reasons to refinance, but lowering your monthly payments and chipping away at your loan balance is likely among your top financial goals. Using refinance calculators, you can get a better idea if it makes sense.

HOW YOU CAN LOWER YOUR MONTHLY MORTGAGE PAYMENT BY REFINANCING

What happens when you refinance your mortgage?

Refinancing your mortgage can save you money on your monthly payments and the total cost of your current loan. When you apply for a refinance, you’re applying for a new loan.

A refinance pays off your current home loan and starts a new home loan with different terms. Many people opt for a mortgage refinance to reduce their interest rate, but you can also change your repayment terms and switch mortgage lenders.

How do you refinance your mortgage?

When it comes to refinancing your mortgage, you simply have to submit an application.

Note: The best candidates have a healthy credit score (you’ll need a score of at least 620, but a higher score will qualify you for lower rates). To maximize savings on a mortgage refinance, aim to reduce your interest rate by at least a full percentage point. Refinancing your existing mortgage may help you save money if you plan to stay in your home for at least five years.

Before you apply for a mortgage refinance, make sure to take time to do the following:

• Review your credit report and correct any errors
• Prepare your home for an appraisal (your lender will want an up to date property value)
• Compare rates and loan terms from multiple lenders
• Check your numbers to determine if the home refinance will save you money (divide your savings by the cost of fees and closing costs to determine how long it will take to break even)

In addition to the Adverse Market Refinance Fee, your lender will likely charge closing costs, loan origination fees, and appraisal fees. If you have any mortgage refinance questions, you can always use Credible to get in touch with experienced loan officers.

HOW OFTEN CAN YOU REFINANCE YOUR MORTGAGE?

Refinancing your mortgage could help you save money each month but you likely have to act now. While refinance rates are projected to remain low through 2023, your home loan could cost you more if you wait to apply.

If you have additional questions about the cost of refinancing or the process, then consider reaching out to a financial advisor.