The fall in mortgage rates has just fallen further after the announcement of the end of the unpopular fees on refinancing.
When the surcharge was first announced last summer, it created an uproar. It was intended to offset losses from the pandemic for mortgage giants Fannie Mae and Freddie Mac, two government-sponsored firms that buy most of America’s home loans and take them out of the hands of lenders.
The fees increased the cost of a refi by half a percent (0.5%), so a loan of $ 300,000 would have required you to pay an additional $ 1,500. Now that the extra fees are gone, millions of homeowners who have yet to refinance have another reason to do so, besides the current low mortgage rates.
Refi fees officially become history next month
The Federal Housing Finance Agency – the regulator overseeing Fannie and Freddie – has said what was officially called “unfavorable market charges” will be removed as of August 1, thanks to policies that have reduced the impact of the coronavirus crisis on the two mortgages. companies.
“The COVID-19 pandemic has financially exacerbated the affordable housing crisis in the United States. Removing unfavorable market refinancing fees will help families take advantage of the low-rate environment to save more money,” FHFA Acting Director Sandra L. Thompson said in a press release on Friday.
Thompson’s agency expects lenders who used to charge borrowers the fees will now pass the savings on to consumers. They largely paid the costs through mortgage rate increases.
Not all refinancers will benefit from the elimination of the surcharge, as the fees never apply to:
Loans valued at $ 125,000 or less.
Freddie Mac’s Low Down Payment Home Possible Loans or similar Fannie Mae HomeReady Loans.
Government insured FHA, USDA or VA loans.
Loans not eligible for sale or guarantee by Freddie or Fannie.
Most refinance loans have triggered fees, as FHFA data shows that 72% of all refinance loans were acquired by Fannie Mae and Freddie Mac in 2018, 2019 and the first half of 2020.
Mortgage rates plunge as fees are undervalued
In mid-August of last year, Fannie and Freddie initially informed lenders of the fees and said they would go into effect a few weeks later on September 1. The Mortgage Bankers Association – a leading group in the mortgage industry – reacted harshly.
“Requiring Fannie Mae and Freddie Mac to charge a 0.5% fee on the mortgage refinances they buy will raise interest rates for families trying to make ends meet during these tough times,” said the then MBA President Bob Broeksmit. “The average consumer will pay $ 1,400 more than they otherwise would have paid.”
Mortgage rates skyrocketed when the fees were announced. To contain the fallout, the FHFA said in late August 2020 that the surcharge would be suspended until December 1 – and rates fell quickly.
Mortgage rates just dropped again after lenders found out the fees were waived. According to Mortgage News Daily, the average rate on a 30-year fixed-rate mortgage fell from 3.04% on Thursday – the day before the FHFA announcement – to 2.87% on Tuesday.
On 15-year loans, which are a popular refinancing option, the average fell over the same period from 2.50% to 2.31%
“It’s a verifiable fact” that the drop in rates is the result of the fee waiver, Matthew Graham, chief operating officer of Mortgage News Daily, told MoneyWise. Graham wrote in a post on Friday that lenders were already waiving fees on all loans that had not yet been closed.
A windfall for homeowners
With pesky refi fees gone and mortgage rates falling, homeowners who haven’t yet refinanced are pretty much running out of excuses.
And there are plenty of those procrastinators: A recent Zillow poll found that 78% of eligible homeowners do not refinance their home between April 2020 and April 2021, despite historically low mortgage rates.
Thanks to the recent drop in mortgage rates, 13.9 million U.S. homeowners can save an average of $ 293 per month by refinancing, according to mortgage technology and data provider Black Knight. The estimate is based on last week’s 30-year average mortgage rate of 2.88% in Freddie Mac’s long-running survey.
But about 3 in 10 homeowners (29%) say they passed on a refi because they “don’t understand the process,” Zillow found.
If you’ve been through the home buying process, refinancing shouldn’t force you to do something you haven’t done before. When you begin the application process, you will need to provide much of the same income and other information that you were asked for when you applied for your original mortgage.
The process can get a bit smoother – and less expensive – if you follow the following steps:
The best refi rates go to borrowers with the strongest credit histories, so check your credit score for free and see if you need to improve it before you apply for your new loan.
Once you’ve decided what you want from your refi – money to gamble with, a lower rate, or both – compare the rates offered by at least five lenders. It’s simple and it’s a key step towards maximizing your refinance savings.
If you think you can find a better rate or more comfortable mortgage terms, don’t be afraid to negotiate. If the lender you are working with is unwilling to budge, there are literally thousands of others who will be more than happy to have your business.