Buzz
In recent months, we’ve frequently discussed mortgage refinancing—and for good reason: Recent data from Freddie Mac reveals that 30-year fixed-rate mortgages have dropped below 3% again. These incredibly low mortgage rates have prompted many homeowners to consider refinancing in order to secure a more affordable rate on their existing mortgage.
Whether your goal is to reduce your mortgage payments or tap into home equity to pay off debts like student loans, there's another important reason to act quickly. Fannie Mae and Freddie Mac are about to start imposing a 0.5% "adverse market fee" for refinanced mortgages, a move driven by the increased risks related to the coronavirus pandemic. This new fee could add up to $1,400 to the cost of an average mortgage refinance, according to the Mortgage Bankers Association.
Although the new refinance fee was initially scheduled to begin on September 1, the Federal Housing Finance Agency announced a delay in a recent press release. The fee will now go into effect on December 1, with refinances below $125,000 being exempt. Fannie Mae’s HomeReady and Freddie Mac’s Home Possible loans are also excluded from the fee.
Is it the right moment to refinance?
According to Bankrate, mortgage experts predict a surge in refinance applications as homeowners rush to avoid this new fee. But don’t expect a quick turnaround: Mortgage refinancing could take anywhere from 45 to 60 days, or even 90 days in some cases. So, is refinancing your mortgage the right decision for you? That depends.
While the historic low mortgage rates may grab your attention, there are other key factors to consider. One major consideration is the break-even point for your refinance closing costs, which typically range from 2% to 6% of your loan amount.
Experts suggest aiming to break even on your refinance closing costs within two to three years. This goal may be difficult to reach if you plan to sell or move within the next couple of years—so be sure to factor in your future plans before proceeding with an application.
If you’re opting for a cash-out mortgage refinance, which will increase your loan balance, be mindful of the added risk. Increasing your mortgage and monthly payments could be risky, especially in a volatile economic climate.
