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As of December 1, 2020, the Federal Housing Finance Agency (FHFA) has introduced a new refinancing fee, otherwise known as the adverse market refinance fee. The new fee was created to help offset some of the losses experienced by Fannie Mae and Freddie Mac, two government lending companies, during the COVID-19 pandemic. 

The New Refinancing Fee, Explained

The adverse market refinance fee is equal to 0.5% of your mortgage principal, meaning that you’ll be paying $500 for every $100,000 you borrow, not including interest. 

However, there are some exemptions from the fee:

  • If your refinanced mortgage is less than $125,000

  • If your government mortgage is backed by the FHA, VA, or USDA

  • If you have a non-conforming mortgage, such as a jumbo loan

The FHFA is charging the refinance fee directly to lenders, not to borrowers. Lenders may elect to roll the fee into the interest rate or add it as a one-time expense to be included with closing costs. 

If your loan is likely to be subject to the new refinance fee, it’s important to make sure a refinance makes sense for you. As a general rule, there should be at least a full percentage point between your current interest rate and your refinance rate for the change to be worth it. If you’ll be saving more than a full percentage point, there’s a good chance that you’ll still be saving enough to outweigh the additional refinance fee. 

Is it Still a Good Time to Refinance Your Mortgage?

Mortgage rates have seen record lows in 2020 and are expected to stay at similar rates well into 2021. If your financial profile has been good enough to secure a relatively low rate, it’s still a good time to refinance despite the additional fee. 

Experts agree that this fee shouldn’t serve as a barrier to those looking to refinance. According to Freddie Mac, 30-year fixed-rate mortgages are hovering around 2.72%, which is the lowest rate on record to date. 

By opting to refinance and take advantage of a lower rate, more than 19 million homeowners could save over $300 a month. However, it’s important to note that these rates are not guaranteed to last. 

If you’re planning to move within the next couple years, refinancing may not be the best option for you. Keep in mind that you will need to pay closing costs when you refinance and these expenses typically add up to thousands of dollars, including the extra refinancing fee. 

However, it’s important to recognize that you do have some control over your interest rate. Maintaining a good credit score and debt-to-income ratio will continue to play a major role in the interest rate that you qualify for. 

Interested borrowers can always get a quote from NJ Lenders to better understand how much they could potentially save, even despite the extra 0.5% fee.