Who's exempt from the new mortgage refinance fee?

A mortgage refinance could make sense sooner, rather than later. (iStock)

With mortgage rates near historic lows, now might seem like a good time to consider refinancing your mortgage.

Refinancing to a lower interest rate could reduce your monthly payments, making your home loan more manageable — but a new refinance fee that went into effect on Dec. 1 could add a wrinkle to the process.

If you're considering refinancing your home, make sure you do your research to ensure you're finding the lowest rates around. Online marketplace Credible can help determine if the move will result in saving money and just how much. Plus, Credible lists out any fees that you may run into, so you know exactly what you're signing up for.

But before you sign on the dotted line, here's what you need to know about the new refinance fee.

What is the new refinance fee?

Beginning Dec. 1, Fannie Mae and Freddie Mac started charging a 0.5% adverse market fee to refinance your mortgage. If you’ve been considering a new mortgage to replace your previous one, it’s important to understand how you could be impacted by this new fee.

The good news: You have some extra time to take advantage of lower rates without additional fees so you can meet your financial goals. If you're ready to refinance, use Credible to browse mortgage companies and compare loan rates without affecting your credit score.

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Which borrowers are exempt from this new refinance fee?

While the adverse market fee has been met with criticism from industry experts, there is something of a silver lining: Not every refinance qualifies for this new fee.

You're exempt from this new refinance fee if:

  • You're refinancing a loan that has a balance of $125,000 or less
  • You're in the low-income housing refinance market
  • You're refinancing a VA or FHA loan

“Loans of $125,000 or less are exempt,” Baker said. Additionally, “borrowers in the low-income housing refinance market will be exempt.” Borrowers planning to refinance either VA or FHA loans also won't be impacted by this new fee.

So refinancing after Dec. 1, whether it’s to simply get a lower rate or because you want to tap home equity with a cash-out refinance, may still be business as usual if you’re exempt from the fee. If you’re unsure about whether you’re exempt or not, don’t hesitate to ask for help.

Talking to an experienced loan officer can help you get all of your most pressing questions about refinancing answered so you can make an informed decision about whether to move ahead. If you’ve determined that a mortgage refinance makes sense, remember to compare rates online to find the right lender for your needs and budget.

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Don't forget to use a cost calculator to estimate your savings calculations from refinancing to lower your interest rate and/or monthly payments.

Why is there a new refinance fee?

The introduction of an adverse market fee is largely in response to measures introduced by the federal CARES Act that were designed to protect financially struggling homeowners and renters. Those measures included mortgage forbearance options for eligible borrowers and a temporary ban on foreclosure proceedings.

“The fee was instituted to protect Fannie Mae and Freddie Mac from adverse market conditions created by COVID,” explained Guy Baker, founder of Wealth Teams Alliance in Irvine, California. “The fee is like an insurance premium meant to create a sinking fund for contingencies which might arise.”

With Credible, you can get a full picture of just how much this new refinancing fee could impact you and your personal finance. Crunch the numbers with Credible's free online tools today to find out.

An August news release from the Federal Housing Finance Agency elaborated on those contingencies, which include the risk of billions of dollars in financial losses associated with a moratorium on foreclosures and forbearance defaults. Mortgage lenders are expected to shoulder the fee for refinancing loans, owing to the riskier nature of refinancing since property values are tied to appraisals, rather than fair market value.

Is it worth it to refinance right now?

While mortgage applications, including those for refinancing loans, were down slightly through the end of September, refinance activity is up more than 50% year over year. That’s according to data from the Mortgage Bankers Association. The increased activity in refinancing applications could be seen as a side effect of how low today’s mortgage rates have fallen, following the Federal Reserve’s decision to slash interest rates to near-zero earlier this year.

To increase your chances of obtaining the lowest refinance rates, make sure you compare mortgage lenders. Luckily, there are free online tools available that make refinancing your mortgage easy. By entering some simple information, you can pre-qualify in minutes.

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Should I refinance my mortgage?

With rates so low, Baker said now could still be a great time to refinance. Whether it makes sense to do so may depend on what rates you’re likely to qualify for, based on your credit history, and how much you could save with a mortgage refi.

Comparing rates from different lenders through a site like Credible can give you an idea of how much of a rate decrease you’re likely to see from refinancing.

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It’s also helpful to use a mortgage refinance calculator to estimate your new monthly payments.

Just keep the lending environment in mind. Since the coronavirus pandemic began, mortgage lenders have tightened restrictions on loans across the board. Securing a refinance loan could be more difficult if your credit score or income has dropped.

What happens if I wait to refinance my mortgage?

If you opt to wait, the result could be a higher interest rate on a new loan.

It’s been predicted that mortgage lenders will pass the 0.5% fee they have to pay on to borrowers by increasing interest rates on mortgage refi loans. According to the Mortgage Bankers Association, the fee will translate to borrowers paying $1,400 more on average for a refinance.

Since refinancing can take weeks or months to complete, time is of the essence if you want to take advantage of today's low rates. If you haven’t compared mortgage rates or been pre-qualified for a refinance loan yet, you can do both through Credible without impacting your credit score.

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