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Refinancing a mortgage has become more expensive.

Starting today, Fannie Mae and Freddie Mac will charge an “adverse market charge” of 0.5% on refinance loans. The fees will be incurred by the lenders who sell loans to Fannie and Freddie, but these costs will certainly be passed on to the borrowers – if they haven’t already.

“It’s likely that lenders who are subject to these fees have already built this into the pricing of their active application pipeline,” said PK Parekh, senior vice president of Discover Home Loans.

According to Parekh, some lenders may decide to absorb the fees, depending on the amount. Others may include the fees in the closing costs, which can already be anywhere from 2% to 5% of the loan amount. However, Parekh believes that “it is likely that they will adjust the interest rate on the loan.”

If fully passed on, unfavorable market charges would result in a rate increase of one-eighth of a percentage point. This is enough to reduce a rate from 3.875% to 4%.

Regardless of how the fees are passed on, the Mortgage Bankers Association estimated it would add $ 1,400 to an average home refinance. Defend the movement, Fannie and Freddie argued that fee translates to an average reduction in savings of about $ 15 per month. In other words, homeowners who would have saved $ 133 on their monthly payments by refinancing before the fee went into effect will now save $ 118.

A spate of record interest rates has led to an explosion in mortgage refinancing this year, allowing many homeowners to lower their monthly payments or take advantage of the increase in their home equity. Mortgage data company Black Knight, estimates that an additional 19.4 million homeowners could save significantly by refinancing at current rates.

The fees have been respected widespread criticism of the industry when it was announced in mid-August. A former commissioner of the Federal Housing Administration called it “majorTo American families, while others said it was undermining a part of the economy that was doing well and violated the federal government’s promise to support homeowners during the pandemic. Originally intended to come into force just two weeks later, implementation was postponed to December 1.

Fannie Mae and Freddie Mac say the fees are necessary to offset the losses they expect to suffer from the COVID-19 pandemic. GSEs predict they will lose $ 6 billion once CARES law homeowner assistance programs expire and seizures restart.

Fannie and Freddie don’t make loans, but about 70% of all mortgages are sold to one of these two government-funded companies.

There is little that borrowers can do to avoid the fees.

Jumbo refinances are not impacted as these loans are too large to be purchased by GSEs. Fannie and Freddie will not charge fees on loans with balances less than $ 125,000. Other affordable refinancing products, such as Home Ready and Home Possible, designed for very low to moderate income first-time homebuyers, are also exempt.

You can also ask the lenders that you are considering selling their loans to Fannie Mae or Freddie Mac. There are lenders, known as private label lenders, who do not sell their loans to any of the GSEs and therefore are not subject to payment of fees.

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Ultimately, there are still plenty of opportunities for those who want to refinance as long as you can still save money despite the extra cost. Your best bet is to compare the rates of different lenders to see which one offers the best deal.

More money :

A ‘Middle Finger’ for Distressed Families: How New Fees Are About to Make Refinancing Your Mortgage Much More Expensive

Procrastinators, it’s not too late to refinance your mortgage and save thousands

The overlooked reason it’s so hard to buy a home in 2020

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