Because this year this rates on mortgage loans have dropped, hordes of homeowners have cut their monthly payment traffic by refinancing. But that process is getting more expensive.
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How To Fix The New Mortgage Financing Fee
The two hugely sponsored mortgage companies that buy or repurchase most U.S. home loans say they have to pay an “unfavorable market financing fee” equal to 0.5% of the loan amount, beginning Sept. 1.
Mortgage lenders are livid and say the charge costs the average borrower an extra $ 1,400. That’s enough to make some people think twice if a ref is worth it.
But do not rule out getting a new loan, because you can easily offset the new fee.
Mortgage giants are paying the COVID-19 ‘ignorance’ fee
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Michele Eve Sandberg / Shutterstock The coronavirus pandemic is cited as the reason for the new fee.
The fee is due to “market and economic uncertainties that result in higher risks and costs,” says Fannie Mae, one of the two mortgage giants announcing the new fee.
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The other, Freddie Mac, refers more specifically to “COVID-19 related economic and market uncertainty” in its notice.
Ironically, it is the pandemic that has made refinancing so attractive by lowering mortgage rates. The outbreak forced the Federal Reserve to take action to lower interest rates, as part of a campaign to warm the economy from its coronavirus recession.
Fire for fear has also led investors to pile on Treasury bonds in search of security, and that trend has lowered interest rates, like returns, on Treasuries. Mortgage rates tend to go in sync with bond yields.
The declining pressure on interest rates has resulted in 30-year mortgage rates averaging less than 3% for the first time ever, and at least one lender has a 30-year loan with a rate below 2% maturity.
But the new 0.5% refinancing charge will effectively “increase interest rates on families trying to make ends meet in these challenging times,” says Bob Broeksmit, president and CEO of the Association of Mortgage Bankers.
“The recent refinancing activity has not only helped homeowners reduce their monthly payments, but it has also reduced risk for (Fannie Mae and Freddie Mac) and taxpayers,” says Broeksmit. He is asking federal regulators to stop the fee.
How refinancers can make up the fee
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baranq / Shutterstock You can offset the new fee by trimming other refinancing and related costs.
Prior to Fannie and Freddie’s twin announcements, mortgage lending firm Black Knight estimated that 15.6 million U.S. homeowners who had not yet refinanced could average $ 289 a month by taking out a new loan.
Let’s say you’re in that group and want to refinance, but now you’ll have to fork out another advance that will pay $ 1,000 on a $ 200,000 mortgage balance. How do you lick that?
The best way is to cut some of your other refinancing and related costs – by doing good old-fashioned shopping around. It may sound simple and almost obvious, but many people do not.
First, shop clean for your mortgage rate. Research by Freddie Mac has found that more than half of lenders end up on the highest rate quote they get – and pay as a result.
But getting a second quote results in an average saving of $ 1,500 over the life of the loan. And if you collect quotes from five lenders, you save an average of $ 3,000, according to the study.
Dan, comparison store for your closing costs. These mortgage costs typically total more than $ 5,000, but you can lower the price tag by looking and finding cheaper providers of requirements such as inspections and assessments.
Your lender may even be persuaded to pay you no appraisal fees if your property was recently appraised. And if you stay with the same title insurance company that handles your original mortgage, you can save up to 40% off title fees.
Finally, shop for other insurance policies. If your homeowners insurance comes up for renewal, check rates from different insurers, to make sure you get the best price for your coverage.
And if you are buying life insurance (which a homeowner needs, to protect lovers from the financial burden of a mortgage – just in case), also compare shop for that policy. Go online and view coverage and discount offers from multiple insurance companies to find your cheapest option.
Smart shopping takes time, but it can easily reduce your costs as a homeowner so you can refinance and still get far ahead – even with that new fee.
Video: Here’s what makes it harder and more expensive for lenders to refinance their mortgage (CNBC)
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