Mortgage rates are currently at all-time lows and many homeowners are taking advantage of that, refinancing to an even lower interest rate. But, we want to explain a new fee that lenders will be charging on conventional loans as of Oct. 1, 2020.

Throughout 2019 and into the 1st quarter of 2020, mortgage rates were actually very low, so many, many people took advantage of those low rates and either bought or refinanced into those low rates.

Then in April 2020, rates went even lower, setting records –and all those people who had already refinanced or purchased wanted to refinance again. Because these refinances are happening so close together, Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation), both of which buy mortgages from banks, are losing billions of dollars as those loans have not have a chance to remotely mature.

Because Fannie Mae and Freddie Mac are taking those losses, they will be implementing a .5% “adverse market” fee to all conventional refinances. This is not a .5% rate hike but rather a .5% fee charged on the loan. For example, on a $200,000 home loan, the new fee will add $1000 to the closing costs of the loan. Unfortunately, lenders are not absorbing this fee and it will be rolled directly into the consumer’s closing costs. It’s considered a surcharge on refinances. A key note: this fee only affects conventional refinances, not purchases, and it does not apply to VA or FHA loans. Borrowers will see this fee appear starting on October 1, 2020.