Unless you’ve been living under a rock, you’ve heard the news: mortgage rates are at historic lows. Despite this incredible fact, they recently fell even further. All due to an extremely unpopular refinance fee that is now (finally) gone forever.
First rolled out in the summer of 2020, this refi surcharge infuriated pretty much everyone across the board. The idea behind the measure was to recoup or offset Covid-19 pandemic losses the big players in the mortgage game were feeling, specifically Freddie Mac and Fannie Mae. These two government backed mortgage entities purchase the vast majority of home loans, so that the lenders themselves have a market to sell the mortgages.
But onto the hated Refi fee… this surcharge, which was blasted by almost everyone after it was introduced, hiked up the cost at closing on any refinance by 0.5%. While that may not seem exorbitant at first glance, if you take, say, a $350,000 refi loan, and tack on that fee, you’re talking about an additional $1,750 upcharge. Needless to say, with this fee now officially axed, the countless homeowners who’ve been on the precipice of refinancing may now want to take action, as, combined with the historically low rates, you no longer have this ridiculous added fee.
Fee Goes Bye Bye in Summer of 2021
Fannie Mae and Freddie Mac are of course subject to federal oversight. The Federal Housing Finance Agency (FHFA) is the entity responsible for this, and, as such, these are the folks the nation turned to regarding the termination of the dreaded refi surcharge, or “adverse market fee” as it was formally named.
The FHFA set the expiration date for August 1st, 2021. So this fee is now officially gone. The agency is crediting government policies that were rolled out which helped alleviate the pandemic’s economic impact on Fannie and Freddie.
Sandra L. Thompson, the FHFA’s acting director, was quoted as saying: "The COVID-19 pandemic financially exacerbated America's affordable housing crisis. Eliminating the adverse market refinance fee will help families take advantage of the low-rate environment to save more money."
The FHFA predicts mortgage lenders will pass the savings of the now defunct adverse market fee (refi surcharge) on to borrowers. And with mortgage rates still continuing to drop, it feels like the time to refinance may never be better than right now.
Majority of Refinances Triggered the Fee
Outside of a few exceptions (loans under $125k, Freddie’s Home Possible loan program and Fannie’s HomeReady loans, FHA, USDA, and VA loans, or loans not sold or guaranteed by Freddie/Fannie) -- the rest of the refis were triggering the adverse market fee.
In total, 72% of all refinances were purchased by Freddie and Fannie from 2018-2020, and most refis in general saw the fee at closing. This data comes straight from the FHFA, the governing body who has now axed the fee for good.
Mortgage Rates Dropping Like a Stone
Hop in our time machine with us and blast off back to the summer of 2020 (we know, we know… pandemic, ugh!). But on the mortgage side of Quarantine Isle, Fannie Mae and Freddie Mac were giving mortgage lenders the heads up about their shiny new toy, the adverse market fee, announcing it was set to take effect as of September 1st, 2020.
The Mortgage Bankers Association was the first big voice to officially freak out.
"Requiring Fannie Mae and Freddie Mac to charge a 0.5% fee on refinance mortgages they purchase will raise interest rates on families trying to make ends meet in these challenging times," was the direct quote from MBA president Bob Broeksmit. "The average consumer will be paying $1,400 more than they otherwise would have paid."
Bob was right about the rate spike. The moment the news of the fee hit the wires, rates jumped. Scrambling for damage control, the FHFA postponed the surcharge to December 1st of 2020. And the moment that addendum was announced, rates dropped, as our headline here promised, like a stone.
But the Slide Didn’t Stop There
When mortgage lenders heard the dreaded adverse market fee was getting the hook, rates dropped once more. Those 30 year fixed mortgages that were seeing average rates at just over 3%... dropped under 2.9% the day prior to the FHFA’s big announcement.
15 Year mortgages are seeing even lower numbers, with averages diving from 2.5% all the way down to 2.3%.
There’s no question about it -- these further rate dips are directly tied to the elimination of the adverse market fee. A refi boom may quickly follow…
Refinancing Now May Be the Smartest Move Homeowners Can Make
Horrible, terrible, no good, refi fee gone! Mortgage rates: rock bottom! If you’ve been waiting for a sign from above to refinance… not sure how much more you can hope to expect!
And yet, human nature’s tendency towards procrastination is rearing its ugly head again. One particular survey from Zillow discovered that 78% of homeowners who were qualified to refi elected NOT to refinance their properties between April of 2020 and April of 2021.
With mortgage rates dropping lower and lower by the day (seems like by the hour at this point!), nearly 14 million U.S. homeowners are in line to save an average of just under $300 per month if they were to refinance now. And that’s just the average -- some could be saving much, much more. Mortgage tech and data analysts at Black Knight used the recent 30-year mortgage rate average of 2.88% to crunch these numbers.
Nearly a Third of Homeowners Hesitate to Refi Due to Confusion Over Process
And this is really a shame, as the reality is the refi process is almost identical to the initial home buying process. There isn’t a bunch of additional paperwork to be filed or logistics to navigate. For the most part, you’re providing the same income, asset, employment and credit info you supplied in the first go round. The lenders aren’t trying to figure out anything new; they’re simply making a risk assessment and determining your eligibility based off of that.
With that in mind, here’s a quick checklist of what you should begin preparing for your refi:
- Want those historically low rates we discussed earlier? Then make sure your credit score is in as good a shape as possible. The higher your score, the lower your rate!
- What is your refi goal? Are you simply looking to lower your rate and payment? Or do you need the cash/capital for a trip, big event, or investment? Regardless of your specific goals, make sure you compare rates with at least a few different lenders to ensure you get the best deal.
- Negotiate, negotiate, negotiate! Your lender is being a stickler about your rate and terms? They’re not the only game in town! So repeat the last step, and compare, compare, compare! And save!
In conclusion, you’ve got this. There’s literally never been a better time to refinance your home, cash in on big savings, and lock in a much lower rate for the life of your mortgage. So get that ball rolling now, and send us a nice edible arrangement as a thank you later (just kidding, we prefer flowers ;))...