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The December Deadline is Approaching: How to Avoid the New 0.5% Fee for Home Refinances.
Mortgage refinancing rates have never been lower. Today, it makes perfect sense to review where refinancing can dramatically decrease your monthly payments. You will want to make that decision quickly though, or those low monthly payments won’t be as low as you thought!
There is a reason for our urgency: A new fee (or tax, depending on how you look at it) is being instituted by the federal government on December 1, 2020. This can raise your monthly payments significantly.
Called a “refinancing fee,” most new refinancing applicants will have to pay 0.5% or a half-point more. The reason for the fee, according to the Federal Housing Finance Agency, which manages Fannie Mae and Freddie Mac mortgages, is to cover expected losses from lapsed mortgage payments due to the COVID-19 virus pandemic. Its effective date was supposed to be September 1, but this was postponed (due to the extended duration of the pandemic and its effect on people being able to afford the additional fee).
Can I Avoid Paying the Fee?
Yes, but only if you act quick. Refinance applications can take 30 to 60 days to close (although we take pride in closing in less than 30 days). This is partly driven by the sheer volume of applications filed these days because of the historically low rates available. Refinancing currently is an especially good idea, as the lower rates translate into smaller monthly payments.
Some lenders are worried that new refinance applications may not close before the deadline. For that reason, they may be adding in this 0.5% fee to their settlement estimates today.
The deadline of December 1st refers to loans sold to Fannie and Freddie. Some loans take 30 days to sell, therefore, anything closed by mid to end of October is still possible to avoid the fee with some lenders.
Who Will Be Affected?
This fee will apply to most but not all refinances. Here are the main points to consider:
- The fee will be charged for refinance loans of at least $125,000 (loans for less than this amount are not subject to the 0.5% fee)
- People who refinance through the Veterans Administration or Federal Housing Agency will not be subject to the fee
- The fee will apply to loans that are likely to be sold to Freddie Mac or Fannie Mae (this represents around two-thirds of mortgages in the US); the lender will have to pay that fee to the agency when it is sold
As an alternative to charging an upfront fee to the settlement costs, the lender may simply raise the loan’s interest rate to account for the fee payment. If given the choice, it would be more beneficial to pay the fee upfront: The higher mortgage rate over the term of the loan will result in interest payments that are far higher than the one-time fee.
Don’t Wait to Apply for Your Refinancing Loan.
If you are considering a refinance to take advantage of today’s low interest rates, the time is now to apply. At Innovative Mortgage Brokers, we can help you close your loan before the new fee takes effect. Our use of technology in the application process speeds the closing along. And our network of lenders allows us to offer you access to a highly competitive rate with low fees.