Goodspeed: New fee for Fannie and Freddie loans
QUESTION: I heard there is a new refinance fee being charged by Fannie and Freddie on refinances. Do you know anything about this fee? Who does it apply to?
ANSWER: The fee you are referring to is an additional 0.5 percent fee that Fannie Mae and Freddie Mac have started charging on most home loan refinances.
Fannie and Freddie are quasi-governmental agencies that buy about two-thirds of home mortgages written by banks and then repackage them as mortgage-backed securities that are guaranteed against default.
Since Fannie and Freddie buy the majority of their home loans, banks are careful to adhere to the agencies’ underwriting guidelines. The reason for the new added fee, according to the Federal Housing Finance Agency, which oversees and regulates Fannie and Freddie, is to protect against anticipated losses from the coronavirus pandemic. The new fee went into effect Sept. 1.
Almost every lender is charging the new fee on mortgage refis valued at $125,000 or more for loans that are ultimately sold to Fannie and Freddie. The exceptions are jumbo loans - mortgages valued at $510, 400 (more in some more expensive parts of the country) – which are not eligible to be sold to Fannie and Freddie. Other exceptions are mortgages backed by the Veterans Administration (VA) and the Federal Housing Administration (FHA).
The fee will be applied by most lenders as either an extra cost at closing or a higher interest rate on the new mortgage. If you can afford to, I suggest you pay the fee upfront at closing. For example, on a $300,000 refi, the fee will be $1,500. If the 0.5 percent fee is applied to your interest rate or to the principle, you will end up paying more than that over time.
But even with the new refi fee added in, mortgage rates remain very low. If you have an existing mortgage with a high interest rate, you will likely save money even with the new fee added in.
Linda Goodspeed is a longtime real estate writer and author of “In and out of Darkness.” Email her at: email@example.com.