Historically low mortgage rates have contributed to the high demand for homes this summer. As of 9/1/20, the 30-year fixed rate was 3.1% with an APR of 3.4%. With rates so low, it’s no surprise that many homeowners have opted to refinance their mortgages in order to secure lower monthly payments.

 

However, refinancing your mortgage could soon come at a higher expense. Last month, Fannie and Freddie Mac announced that they would add a 0.5% fee to all refinancings that close after December 1, 2020 (the original deadline was September 1st). For example, if you are refinancing a $300,000 loan, and it closes after the end of November, you can expect a one-time newly added charge of $1,500 for what the FHFA is calling their Adverse Market Refinance Fee.

 

There are a few caveats. For example, the fee won’t apply to jumbo loans, loans below $125,000, and those originated and held by the lender. Lenders recommend that you take this new fee into consideration when finding your break-even point on a refinancing (the point when you recoup the costs of refinancing and start saving).

 

When the fee was first announced, there were significant concerns throughout the industry. It was a surprising move by Fannie and Freddie during one of the worst crises that Americans have ever faced. However, the delay in implementing the fee, along with the overall strength of the bond market, has helped contribute to the 3-week lows that we saw as of September 1st, despite the Fed's announcement last week that it plans to let inflation increase (most people equate higher inflation with a negative impact on low rates). This could potentially push longer-term mortgage rates higher.

 

Mortgage applications continue to be up significantly compared to last year, and the real estate market is currently maintaining a healthy pace. Lenders are busy. If you are considering a refinancing this year, you should be in touch with your lender now.