As of December 1st, 2020, the FHFA (Federal Housing Financing Agency made certain refinancing loans subject to what is known as the Adverse Market Refinance Fee. This newly created fee could impact refinancing costs for some homeowners. As it currently stands, the fee will apply to conforming conventional mortgages with balances over $125k. A conforming mortgage is one that sits at or below a specified loan amount.
Implications and Benefits
The limit signifies the amount at which Fannie Mae or Freddie Mac is willing to purchase or guarantee a loan. The following mortgages are exempt from the Adverse Market Refinance Fee:
- conventional refinance loans with balances equal to or less than $125k
- Fannie Mae HomeReady® and Freddie Mac Home Possible® refinancing programs
- FHA, USDA, and VA refinance loans
- home purchase loans
- jumbo or non-conforming refinancing loans
If your loan is subject to the fee, there are certain refinancing benefits such as the ones listed here that you could still enjoy:
- lower interest rate
- lower monthly mortgage payment
- reduced term of the loan and interest savings over the loan term
- removal of PMI (private mortgage insurance)
Thus, you will need to consult with experts or read the fine print on your mortgage to know if you qualify.
How Will Lenders Pass the Fee onto Their Customers?
The FHFA will charge the fee directly to lenders who will most likely pass it on to their loan customers. However, the way in which a borrower may get charged may vary from one lender to the next. For instance, a lender may add it to the closing costs, raise the interest rate, or tack it on to the total loan amount. With the fee currently sitting at 0.5%, a lender will pay $500 for every $100k of the loan amount. You can consult with the refinance experts to get more details.
Who Is Exempt from The Adverse Market Refinance Fee?
As was mentioned above, some borrowers will be exempt from theAdverse Market Refinance Fee. The fee only applies to conforming loans. Therefore, jumbo mortgages (loans exceeding $510,400 in most areas and $765,600 in high-cost areas) will not be subject to the Adverse Market Refinance Fee.
Don Burns of H.O.M.E Lending quoted “lenders who don’t sell their loans to government-sponsored enterprises (GSE’s) will also be exempt from the fee. In turn, this could give lenders and their customers an advantage over others. This hike in loan costs could make borrowers reluctant, considering the purpose of refinancing a home mortgage is saving money, not spending more. “
To learn more about the Adverse Market Refinance Fee, call H.O.M.E. Lending at (209) 477-0262. Our business representatives are available to render any assistance that you need for all your mortgage requirements. Call us now!