The announcement from Fannie and Freddie last week may have some rethinking refinancing.
It seemed like more and more good news was coming out for people looking to refinance mortgages. Rates hit historic lows last week, leading to significant savings for many borrowers. However, last week’s announcement will counteract some of the benefits that we have been seeing.
Fannie and Freddie just announced that they will begin charging a new .5% fee on all refinances. The fee goes into effect September 1st. They are calling it an “adverse market fee” and are imposing it to counteract potential losses because of additional COVID market risks and uncertainty.
They make a fair case that there is increased risk in these times. However, it is strange that the fee only applies to refis and not purchases, as purchases would also have additional uncertainty.
The fact that the fee goes into place so soon could be a short-term hit for lenders. Many borrowers who have mortgages in progress and have locked in a rate will not be charged extra, but the fee will still be assessed to lenders if closing does not happen this month.
Property owners who have not locked in rates will likely see a higher cost of borrowing.
All in all, rates are still very low from a historical standpoint. While this news puts a damper on some of the excitement, it will likely not cause a huge swing in rates, leaving an opportunity for many to save significant money though refis. For further questions on this topic please reach out to me at [email protected].