Homeowners with a conventional mortgage who are working to refinance their loan to a lower interest rate have a new fee that will be added. We’ve advised for the last few months that this fee was coming and it’s here.
The fee is known as the Adverse Market Fee and it adds a .5% fee on to all conventional refinances; it does not affect purchases for the initial home loan. The reason this fee is being added now is because Fannie Mae and Freddie Mac were losing money. Borrowers who took advantage of the low rates in late 2019 are refinancing again since rates have dropped that much more, even though their loans were only 6 to 12 months old. Those loans did not have time to mature, so Fannie and Freddie were taking a bath with early payoffs.
It’s important to note this is not a .5% add-on to the interest rate, but rather a .5% fee that charges more to get the loan. For example, on a $250,000 loan amount, the adverse market fee will add $1,250 to the cost of the loan. It can be looked as a .5% discount fee. Lenders are not absorbing the fee but are passing it onto the borrower.
However, even though this may add to the cost of the loan, the great news is that mortgage rates are still so low, it will still make sense to pay this fee as the long-term savings are huge. Contact Indigo Colorado with any questions about mortgage loans or refinances.