Understand more about the refinance fee removal and how you can save even more on your mortgage refinancing.
Effective August 1, 2021, the Federal Housing Finance Agency (FHFA)’s adverse market refinance fee is removed on all loans. This is fantastic news for homeowners, presenting the opportunity to save thousands of dollars on top of already record-low rates. This handy guide will help you understand the fee’s background and why its elimination is a boon for borrowers. We’ll also take a closer look at some of the other costs typically associated with refinancing, preparing you to go forth and conquer:
What is the adverse market refinance fee?
Beginning December 2020, the Federal Housing Finance Agency (FHFA) instituted an adverse market refinance fee of 0.5% for most refinance mortgages. The FHFA intended for the fee to ease the projected financial burden associated with COVID-19 and its disruptive effects on the economy and was payable to Freddie Mac and Fannie Mae. Not all borrowers were required to pay the fee, such as those receiving financing for less than $125,000 and VA and FHA applicants.
Though the FHFA charged the fee to lenders, lenders passed the expense to borrowers, either through higher interest rates or as an additional charge tacked onto closing costs. With the fee elimination, the FHFA requires that lenders now must pass on the savings to borrowers.
Why is the FHFA eliminating this fee?
According to their announcement, the FHFA discontinued the fee following the success of their COVID-19 policies, which mitigated the severity of the pandemic’s impacts on homeowners. Indeed, the FHFA’s pandemic-related forbearance policies do appear to have been largely successful: In May 2020, at the height of COVID uncertainty, approximately five percent of mortgages on single-family homes were in forbearance. By April 2021, only two percent remained in forbearance, offering hope that the economy is rebounding.
What does this mean for me?
Thanks to the reversal of the adverse market fee, many applicants can now expect to enjoy additional savings of approximately 0.125% on their mortgage rate when refinancing. While that might not sound like much, it really adds up over the life of the loan. Better yet, amid fierce competition, some mortgage lenders are reducing their rates further still in an effort to differentiate themselves and attract eligible borrowers. For homeowners who have remained on the sidelines due to the upfront costs associated with refinancing, there is still an opportunity to score a great rate, but roll the closing costs into the new loan. With these “no-closing-cost” refinances, closing costs are generally amortized over the life of the refinanced loan and reflected in a slightly higher interest rate or an additional monthly fee. This can be an attractive option for homeowners that aren’t planning to stay in their current property for the long term.
While there has been plenty of noise about mortgage rates ticking back up, the reality remains that interest rates are still exceptionally low from a historical standpoint. In fact, they are still well below their pre-COVID range and not expected to fluctuate significantly throughout the remainder of 2021. With that said, the Mortgage Bankers Association (MBA) is projecting that rates will top 4 percent in 2022 and trend steadily upwards through the end of 2023. So, what are you waiting for? Take advantage now and see how much you could save by refinancing!
How do you begin the refinancing process?
Preparation for your mortgage refinance is similar to an initial home loan. First, consult your credit reports and double-check there are no errors that could unnecessarily hurt your credit score. Begin gathering documents to reflect your income and cashflow, including tax records, pay stubs, and bank statements as required.
In addition, you’ll want to look at a variety of loan scenarios to find out which one makes the most sense for your particular situation. Check out 15-year and 30-year options and figure out which loan product is most appropriate for your overall financial goals.
Simplist offers dozens of refinancing products for a variety of scenarios, and we make it easy for you to compare your options in one place. With mortgage rates still hovering near all-time lows and with the refinance fee removed, countless homeowners can enjoy significant savings by refinancing. Fill out our easy, streamlined application today, or schedule a call with one of our licensed Loan Experts to learn more. We’re here to make the refinancing process painless from start to finish, and help you take advantage of this favorable refinance environment.