Refinancing your home is becoming more expensive. Here’s why


If any part of the economy is doing well, it’s the mortgage industry. Record-low mortgage rates are driving so many people to refinance that the housing market is on track to see $2 trillion in refinances in 2020, after 2003, according to the Mortgage Bankers Association. But as of December 1, refinance will begin Homeowners likely cost more. Fannie Mae and Freddie Mac will impose a new — and hotly contested — “negative market fee” on refinanced mortgages to repackage them for investors. The new fee will be charged by lenders and will require them to pay an additional 0.5% of the loan amount as a one-time fee on the total loan amount. That equates to about $1,400 on an average mortgage, according to the Mortgage Bankers Association. But the fee will likely be felt by homeowners, as lenders are expected to pass on the cost of the MBA. “And it can make the difference for a lot of people whether refinancing is worth it or not.” He estimates that the additional costs result in refinancing that is 10 to 15 basis points higher than a purchase loan. Nearly 20 million homeowners could benefit from refinancing at current interest rates, according to Black Knight, a mortgage data company. That includes 4.5 million homeowners who could save at least $400 a month, and 2.7 million who could save $500 or more each month by refinancing at today’s interest rates. Refinancing typically lowers payments . They say that for an average refinanced mortgage, homeowners can expect a reduction in savings of about $15 per month because of the fee. Refinancing homeowners who previously saved $133 on their monthly payments will now save an average of $118 per month, they said. The fee was originally scheduled to go into effect on September 1, but the regulator overseeing Freddie and Fannie announced it would delay the fee’s introduction until December 1. The agency added that loans with less than $125,000 in balance will be exempt from the fee, as well as affordable refinance products such as Home Ready and Home Possible. Jumbo loans, or those too large for Fannie and Freddie to buy or guarantee, are not directly affected, although these loans initially carry higher interest rates. Borrowers receiving FHA, VA, USDA Rural or other loans that do not meet Fannie Mae or Freddie Mac standards also do not incur a fee. It’s possible to avoid the fee by refinancing with a bank or online lender that originates and both hold the loan or sell it to private investors instead of selling it to Fannie or Freddie. But this type of loan often comes with higher interest rates. Mortgage rates have hit record lows repeatedly this year. According to Freddie Mac, the interest rate on a 30-year fixed-rate mortgage fell from 3.65% in mid-March to 2.27% in mid-November, the 13th record low this year. Exceptionally low interest rates are driving many volumes, Fratantoni said, “Both loans to buy a home and refinance an ongoing mortgage will trend higher in 2021,” he said. “That would happen anyway and result in lower refinancing volume next year The FHFA says the fee is necessary because it is needed to cover billions in losses related to COVID-19 at Freddie and Fannie Tenants and borrowers have been taken — including offering forbearance programs, buying forbearance loans and changing mortgage terms to reduce monthly payments and simplify repayments — which will cost at least $6 billion, according to conservative estimates by the FHFA Currently, the FHFA expects credit losses in H $4 billion in projected forbearance losses, $1 billion in foreclosure losses and $1 billion in servicer fees and other forbearance costs.

If any part of the economy is doing well, it’s the mortgage industry. Record-low mortgage rates are driving so many people to refinance that the housing market is on track to see $2 trillion in refinances in 2020, the second largest after 2003, according to the Mortgage Bankers Association.

But starting December 1, refinancing will likely cost homeowners more. Fannie Mae and Freddie Mac will impose a new — and hotly contested — “market disadvantage fee” on refinanced mortgages.

Fannie and Freddie, who guarantee about half of the country’s mortgages, don’t originate mortgages directly to borrowers but buy mortgages from lenders and repackage them for investors. The new fee will be charged by lenders, requiring them to pay an additional 0.5% of the loan amount as a one-time fee on the total loan amount.

That works out to about $1,400 for the average mortgage, according to the Mortgage Bankers Association.

However, the fee will likely be felt by homeowners as lenders are expected to pass on the cost.

“Whether you pay it upfront or over the life of a loan, you pay it,” said Mike Fratantoni, MBA’s chief economist. “And it can make the difference for a lot of people whether refinancing is worth it or not.”

He estimates that the additional costs result in refinancing that is 10 to 15 basis points higher than a purchase loan.

According to Black Knight, a mortgage data company, nearly 20 million homeowners could benefit from refinancing at current interest rates. That includes 4.5 million homeowners who could save at least $400 a month and 2.7 million who could save $500 or more each month by refinancing at today’s interest rates.

Fannie and Freddie argue that the fee won’t cause the cost of homeowners’ mortgage payments to increase because refinancing typically lowers payments. They say that for an average refinanced mortgage, homeowners can expect a reduction in savings of about $15 per month because of the fee. Refinancing homeowners who previously saved $133 on their monthly payments will now save an average of $118 per month, they said.

The fee was originally supposed to come into effect on September 1st. But after an industry and political backlash, the Federal Housing Finance Agency, the regulator overseeing Freddie and Fannie, announced it would delay the introduction of the fee until December 1. 1.

The agency added that loans with a balance of less than $125,000 will be exempt from the fee, as will affordable refinance products Home Ready and Home Possible.

Jumbo loans, or those too large for Fannie and Freddie to buy or guarantee, are not directly affected, although these loans initially carry higher interest rates. Borrowers receiving FHA, VA, USDA Rural or other loans that do not meet Fannie Mae or Freddie Mac standards also do not incur a fee.

It’s possible to avoid the fee by refinancing with a bank or online lender, who will make the loan and either keep it or sell it to private investors instead of selling it to Fannie or Freddie. But such loans often come with higher interest rates.

Mortgage rates have hit record lows repeatedly this year. The interest rate on a 30-year fixed-rate mortgage fell from 3.65% in mid-March to 2.27% in mid-November, the 13th record low this year Freddie Mac.

Exceptionally low interest rates are driving much of the volume, Fratantoni said, both for loans to buy a home and to refinance an ongoing mortgage.

Video: Saving tips for your own home

Fratantoni said this fee will be factored into pricing from now on.

“Our forecast is that mortgage rates will go up in 2021,” he said. “That would happen anyway and result in a lower refinancing volume next year. This fee will help.”

The FHFA says the fee is necessary because it is needed to cover billions in losses related to COVID-19 at Freddie and Fannie. Specifically, measures taken by businesses during the pandemic to protect tenants and borrowers — including offering deferral programs, buying deferred loans and Change mortgage terms to reduce monthly payments and simplify repayments – which the FHFA conservatively estimates to be at least $6 billion.

Currently, the FHFA estimates $4 billion in credit losses from expected forbearance defaults, $1 billion in foreclosure losses, and $1 billion in servicer fees and other forbearance costs.

Previous Who actually controls the oil in the world? | Rigzone
Next Obituary for George Francis O'Hara Jr.