With 30-year fixed mortgage rates at an all-time low of 2.71%, many property owners are considering refinancing to take advantage of this “cheap” money. But before you rush into any type of new real estate loan, be sure to read all of the “fine print.” Otherwise, it could end up costing you a lot more than you originally thought.
That’s because there is a new refinance fee in effect as of early December (2020) that can essentially raise your cost of borrowing. Recently, the U.S. Federal Housing Finance Agency imposed a fee of 0.5% on mortgage lenders for newly-refinanced property loans.
This new fee isn’t listed as a separate item on the closing statement, though, like points are. Rather, it will be reflected as a part of the interest rate. So, while borrowers might think that they’re refinancing at a particular rate, this fee with be added to that – and for the average mortgage borrower, it could increase the overall interest rate by .125% to .25%.
The reasoning behind this added refinance fee is to help Fannie Mae and Freddie Mac – the entities that back home loans – recoup the $6 billion that was lost on the mortgage forbearance plans during the COVID-19 pandemic when borrowers were allowed to postpone their monthly payments. There is one exception, though, and that is if the loan is less than $125,000, the fee will be exempted. It may also be possible to ask the lender if they will waive this additional fee.
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