Want To Refinance Your Home Loan With Record Low Rates? Get Ready For A Hefty Fee

Aug 14, 2020
Originally published on August 17, 2020 7:56 am

Millions of Americans are refinancing their mortgages to save money as superlow interest rates create a rare financial bright spot amid the pandemic.

But homeowners are about to get hit with a big new fee. Starting next month, all home mortgages that are refinanced will have to pay half of 1% of the loan. In other words, $1,500 for a $300,000 mortgage.

The fee will be charged by Fannie Mae and Freddie Mac, which guarantee about half of all mortgages in the country. The government-sponsored enterprises, Fannie and Freddie, were created separately decades ago to keep the market stable. Their loan guarantees make banks more willing to loan money.

Many experts say the new fee could discourage homeowners from refinancing.

"This is harming American families," says Mike Calhoun, president of the nonprofit Center for Responsible Lending. "It's absolutely the wrong thing to be doing now."

Calhoun says Fannie and Freddie should not be putting barriers in the way of people being able to refinance to save money, given that both entities have received massive support from the government because of the key role they play in the economy.

"We should be doing more to help people refinance," he says. "And this is going in the opposite direction."

Fannie and Freddie say the extra fee makes up for the added risk they are taking on because of "adverse market" conditions. In other words, with the pandemic and economic crisis, there's more risk of defaults and foreclosures.

The entities also stress they are not charging the fee on home purchases so as not to hurt home sales. And they say banks and other lenders are making record profits on refinanced loans, so they don't necessarily have to pass along the added cost to homeowners.

But with so many homeowners clamoring to take advantage of record-low interest rates, demand is high and most lenders are unlikely to absorb that extra cost.

"It will be passed along to the consumer," says Bob Broeksmit, president of the Mortgage Bankers Association. He blames the Trump administration-appointed regulators at the Federal Housing Finance Agency who approved the new fee.

"To raise the cost of refinancing and put a real barrier between American consumers and these lower payments is absurd at every level," Broeksmit tells NPR. "And I just can't understand, particularly as President Trump seeks reelection, why in the world they would do this."

The White House says it's reviewing the fee.

Meanwhile, Calhoun says that those looking to refinance should shop around. He says that especially right now, some lenders are offering lower rates than others. Also, the new fee can be added to the principal of the loan so it can be paid off over a long period of time.

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Record low interest rates have millions of Americans refinancing their mortgages to save money. It's been a rare financial bright spot in this pandemic. But homeowners are about to get hit with a hefty new fee. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: The new refinancing fee starts next month, and it will be half of 1% of the loan. So on a $300,000 mortgage, that's a $1,500 fee. It's being charged by Fannie Mae and Freddie Mac, which were created by the government decades ago to guarantee loans and keep the market stable. They exist largely behind the scenes. But whatever lender you go through, there's a good chance that Fannie or Freddie guarantees your loan. And that makes banks more willing to give you the money. That's especially needed right now, but many experts say the new fee is not.

MIKE CALHOUN: This is harming American families. It's absolutely the wrong thing to be doing now.

ARNOLD: Mike Calhoun is with the Center for Responsible Lending. He says Fannie and Freddie get huge support from the government because of the key role they play in keeping the market stable. So he says during an economic crisis, they should not be putting up barriers in the way of people being able to refinance and save money.

CALHOUN: We should be doing more to help people refinance, and this is going in the opposite direction.

ARNOLD: Fannie and Freddie say basically, with the pandemic and economic crisis, there is more risk of defaults and foreclosures, thus the extra fee. They also say they are not charging the fee on home purchases so as not to hurt home sales. And they say that banks and other lenders are right now making record profits on refinanced loans, and so they don't have to pass along that added cost to homeowners. But with demand so high from homeowners to refinance, many lenders may not have to eat that extra cost.

BOB BROEKSMIT: It will be passed along to the consumer.

ARNOLD: Bob Broeksmit is the president of the Mortgage Bankers Association. He blames the Trump administration-appointed regulators who approved the new fee.

BROEKSMIT: To raise the cost of refinancing and put a real barrier between American consumers and these lower payments is absurd at every level. And I just can't understand, particularly as President Trump seeks reelection, why in the world they would do this.

ARNOLD: The White House says it's reviewing the fee. If you're looking to refinance, Mike Calhoun says shop around. Especially right now, some lenders are offering lower rates than others. Also, the new fee can be added to the principal of the loan, so it can be paid off over a long period of time. Chris Arnold, NPR News.

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