Over the past few months, we’ve written about mortgage refinancing several times—and for good reason: New Freddie Mac data shows 30-year fixed-rate mortgages have dipped below 3% again. These rock-bottom mortgage rates have inspired crowds of folks to consider scoring a cheaper rate on their existing mortgage.
Whether you are trying to lower your mortgage payment or borrow from home equity to pay off debt like student loans, there may be another reason to act sooner than later. Fannie Mae and Freddie Mac will soon start charging a 0.5% “adverse market fee” for refinanced mortgages in response to the extra risk due to the coronavirus pandemic. This could tack an extra $1,400 on to the cost of the average mortgage refinance, according to the Mortgage Bankers Association.
Although the new refinance fee was originally scheduled to go into effect on Sept. 1, the Federal Housing Finance Agency delayed these plans in a press release last week. According to the release, the new fee won’t take effect until Dec. 1—and won’t include refinances below $125,000. Fannie Mae’s HomeReady and Freddie Mac’s Home Possible mortgages are also exempt.
Is it time to refinance?
As Bankrate reports, mortgage experts are expecting a rush of new mortgage refinance applications to avoid this new fee. Don’t expect the process to go quickly: Mortgage refinance could take 45 to 60 days right now—or even 90 days in some cases. But is refinancing your mortgage even the right move for you? Well, it depends.
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Although it’s easy to focus on the historic low mortgage rates, there are other important factors at play. One of the biggest may be the break-even point on your refinance closing costs, which typically range from 2% to 6% of your total loan.
Experts say you should try to break even on your mortgage refinance closing costs within two to three years. This may be difficult to achieve if you’re planning to move within the next year or two—so consider your future plans carefully before applying.
If you’re looking for a cash-out mortgage refinance—which increases your total mortgage balance—you should consider the extra risk. Adding to your mortgage and increasing your monthly payment could be an unsafe move amid a shaky economy.
