Due to the 0.5% “unfavorable market” fee, effective December 1 and imposed on lenders by mortgage backers Fannie Mae and Freddie Mac, many homeowners are expected to absorb at least some of the cost when they refinance. (Fixed debt, including rebates) for debt balances below $ 125,000).
“If you believe it takes two months to close [on the refinance]Anything can apply for December after the beginning of October, ”said Joel Kahn, associate vice president of economic and industry forecasting for the Mortgage Bank Association.
For a $ 280,000 mortgage, a 0.5% fee would mean your lender is $ 1,400 when your loan is sold to Fannie or Freddie. The expectation is that the additional cost will be passed on to the borrower in the form of higher interest rates.
The adjustment could add an additional 0.125 to 0.25 percentage points, estimates the association. Right now, it is possible to get a 30% traditional mortgage or a refinance at a rate below 3%. A year ago, they were pushing 4%.
The fees were initially scheduled to begin on 1 September, but were delayed in late August to give the industry time to prepare.
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The Federal Housing Finance Agency, which oversees Fannie and Freddie, said the charge is to compensate for an estimated $ 6 billion in losses – largely related to debt and, separately, an estimate of the default rate between Fannie and Freddie The rate is in the form of unemployment. There remains high and economic uncertainty.
The fee does not apply, at least partly due to the increased risk to lenders when it comes to refinancing.
“In some ways, Refis is seen as risky because there is no market value associated with the asset – it’s just a valuation,” Kahn said.
“If it is a purchase transaction, then there is a market price – you know the price because buyers are ready to pay it, so it is a more accurate picture of the market,” he said.
Kanai said many lenders would end the fee through a higher interest rate, with Kahn saying this should not avoid homeowners who could take advantage of refinancing.
“These are the lowest rates we’ve seen in a long time,” Kahn said. “If there will be any benefit from refinancing, that should be the primary factor influencing your decision.”
He said the general rule was that refinancing was worth it if the interest rate you paid was to fall by at least 75 basis points (three-quarters of a percentage point) or 1 percentage point.
“Now you see people refinancing with a 50 basis-point difference,” Kahn said. “If you’re going from 3.5% to 3% and you have a big-enough balance, it’s worth it.”
Additionally, keep in mind that refinancing activity continues to keep mortgage lenders busy – expected to wrap up in 2020 with 90% more refinancing by 2019.
“The pipeline is full,” Kahn said.