New Home Mortgage Refinance Fee Took Effect December 1, 2020
Historically low interest rates have sparked a dramatic increase in people seeking new home loans and refinancing their existing home loans. For the past 10 years, mortgage interest rates have been around 4-5%, significantly less than in the early 1980s when rates hit near 18%. While rates have not seen 10% since 1990, they have hovered around 3% for over a year.
As more people lock in these historically low rates for up to 30 years when purchasing a home, current homeowners also want to save money on their home loans. In August 2020, Fannie Mae and Freddie Mac, the largest home mortgage funders in the United States, announced a 0.5% fee when refinancing home mortgages to cover risk and projected lost revenue resulting from market uncertainty and the economic impact of COVID-19. This new fee went into effect on December 1, 2020.
The Impact of the New Refinance Fee
About two-thirds of home mortgages in the United States are sold to Fannie Mae or Freddie Mac, meaning their policies and fees often set the standard for the industry. As a result, most lenders decided to follow suit and adopt this same fee. For a person with a $300,000 loan, this additional fee equates to another $1,500 to the refinance process that already includes numerous fees adding 2% to 5% to the loan amount.
Even with this additional 0.5% fee, it may be financially smart to refinance your loan. Look at the total cost of fees and the length of time you anticipate owning the home to identify your break-even point and when you will begin reaping the financial benefits of a lower interest rate.
Not All Refinances Include the New Fee
This new fee does not apply to loans under $125,000. If you are refinancing your mortgage with the current loan owner, you may avoid this fee as some companies offer loyalty discounts to existing customers. Additionally, in what has become a competitive market for home mortgages with these low rates, some companies offer lender credits to help absorb some of the costs from fees.
Low-interest rates have created the opportunity for many people to enter homeownership and save money. For more information on new home loans as well as refinancing your existing loan, visit us at Lynx Mortgage Bank.
Lynx Mortgage Bank was founded by a small group of mortgage and financial professionals in Long Island, New York, seeking to offer customers a simple “no surprises” approach to the mortgage process. They offer a full range of products, from mortgages to home equity lines of credit.
Licensed Mortgage Banker; New York State Department of Financial Services.
