What Was The Adverse Market Refinance Fee?
Victoria Araj3-minute read
February 21, 2023
The Federal Housing Finance Agency (FHFA), the conservator for Fannie Mae and Freddie Mac, recently removed a 0.5% surcharge that applied to most refinance transactions backed by the two major mortgage investors.
We’ll start by briefly discussing what’s being rolled back. Then we’ll touch on how much you can expect to save. Finally, we’ll go over why it’s a great time for many people to refinance, given the fee changes.
The Adverse Market Refinance Fee, Defined
The adverse market refinance fee was a charge of 0.5% of the loan amount on most conventional refinances backed by Fannie Mae or Freddie Mac above $125,000.
While the fee only applied to conforming loans sold to these mortgage investors, that accounted for 70% of mortgages. In addition to other exceptions, the fee didn’t apply to loans backed by government agencies such as the FHA and VA. Mortgages backed by these agencies are packaged into a different type of bond entirely.
The original rationale for the fee was to help cover increased costs incurred by Fannie Mae and Freddie Mac as a result of the COVID-19 pandemic. The Biden administration has rolled back the fee in support of its affordable housing goals.
Who Was Exempt From The Adverse Market Fee?
While the adverse market refinance fee affected many borrowers, some people were exempt based on their type of loan and when they refinanced. The FHFA allowed the following exemptions from the previous refinancing fee:
- Loans under $125,000
- Direct/portfolio lenders
- Home Possible loans
- HomeReady loans
- VA loans
- FHA loans
- USDA loans
- Jumbo loans
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How Much Can You Save Without The FHFA Refinance Fee?
Because the fee was based on a percentage of the loan amount, the savings can be quite significant, particularly for larger loans. As an example, on a $300,000 loan amount, you end up saving $1,500. A quick mental math shortcut is that for every $100,000 on your loan, you end up saving $500 with the elimination of this adverse market fee.
So, with the fee removed, you’re saving a lot of money off closing costs. This is important because closing costs are a big factor in whether it makes sense for anyone to refinance.
So, Is Now A Good Time To Refinance?
In addition to the elimination of this adverse market fee, depending on your current interest rate and your goals, it’s an excellent time for many people to refinance. If you pay for a prepaid mortgage interest point or two as part of your closing costs right now, you can get a rate under 3% on a 30-year mortgage.
For example, at this exact scenario for a $300,000 loan. Let’s say your current rate is 3.5% and you want to refinance while keeping the exact same term. If you drop that rate to 2.99%, which is very possible in this market, you would save $83.94 per month on your payment and more than $30,218 over the life of the loan.
You do end up typically paying 2% – 6% of your loan amount in closing costs. Let's say your closing costs are 4% - that's still more than $18,200 in savings over time.
And that’s just if we keep the term the same and don’t make any extra payments toward the balance.
If you were to lower the term and put more toward the principal on occasion, your savings would be even higher. To estimate your potential total savings, try using our refinance calculator.
The Bottom Line: Celebrate Your New Refinance Savings
Now that you don’t have to pay the hefty adverse market refinance fee, it’s the perfect time to consider whether to refinance your mortgage. Before signing on the dotted line, be sure to calculate your potential savings, and research which refinance option will work best for you.
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