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There's a new add-on fee if you refinance your home — but some may be exempt

Some estimate the adverse market fee will add $1,400 to the cost of an average refinance.

It’s called the adverse market fee. Even if you don’t know what it is, it doesn’t sound appealing. And it certainly isn’t if you are trying to save money by refinancing your home.  

The new .5% surcharge will be applied to refinances of mortgages over $125,000. It was originally scheduled to go into effect a few months ago but was postponed to a December 1st start date. It has been strongly criticized by the Mortgage Bankers Association, which estimates it could become a costly hit to a housing market that has already struggled to bounce back from the dire effects of the pandemic. The association estimates the new fee will add $1,400 to the average refinance. 

The Federal Housing Finance Agency (FHFA) explains the add-on charge is intended to help big mortgage backers Fannie Mae and Freddie Mac recoup an anticipated $6 billion they expect to lose because of COVID-19’s effect on the mortgage market.

Some refinances will be exempt from the new fee

It is important to note that the adverse market fee will not be applied to what is considered lower balance refinances. This is an excerpt from the FHFA explanation linked above:

"FHFA is also announcing that the Enterprises will exempt refinance loans with loan balances below $125,000, nearly half of which are comprised of lower-income borrowers at or below 80% of area median income. Affordable refinance products, Home Ready and Home Possible, are also exempt."

The fee could be passed along in higher mortgage rates

If you try to refinance your home now, this probably isn’t something you’ll have to dig into your pocket to pay. It would more likely just be added on to the loan rate your bank offers when you refinance. But mortgage rates have recently been staying steady at record lows.

Even with the new fee, millions may still benefit from refinancing

Considering where mortgage rates are, Black Knight’s latest Mortgage Monitor report shows that even if lenders bump their rates up slightly to adjust for the adverse market fee, millions of homeowners could still benefit by refinancing, with an average saving of $304 per month.

Still curious? Here are some things to consider if you are thinking of refinancing.