Mortgage Rates vs. Fed Announcements

File this one under “no correlation,” despite a flood of news articles claiming the Fed’s rate cut directly impacts mortgage rates. Today, the Fed cut the federal funds rate by half a percentage point to a range of 1-1.25% due to the uncertainty surrounding the coronavirus, this despite a strong U.S. economy. That sent mortgage [&hellip

The post Mortgage Rates vs. Fed Announcements first appeared on The Truth About Mortgage.


What Is a Streamline Refinance?

Mortgage Q&A: “What is a streamline refinance?” While qualifying for a mortgage refinance is generally a lot harder than it has been in the past (now that lenders actually care how your home loan performs), there are less cumbersome options available. In fact, many lenders offer “streamlined” alternatives to existing homeowners to lower costs and [&hellip

The post What Is a Streamline Refinance? first appeared on The Truth About Mortgage.


United Wholesale Mortgage Now Offering FHA Loans with Rates Below 2%

The leading wholesale mortgage lender in the nation has brought the heat once again, this time offering 30-year fixed mortgage rates below 2% on FHA loans. United Wholesale Mortgage announced that borrowers can now lock in interest rates as low as 1.99% on FHA-backed loans via its popular Conquest program. The new Conquest for FHA [&hellip

The post United Wholesale Mortgage Now Offering FHA Loans with Rates Below 2% first appeared on The Truth About Mortgage.


How to Get a Wholesale Mortgage Rate

Mortgage Q&A: “How to get a wholesale mortgage rate?” Wholesale mortgage rates tend to be considerably cheaper than their retail counterparts, though it’s never a guarantee with so many lenders out there these days. To get your hands on one, you need to shop for your home loan with a mortgage broker, who has access [&hellip

The post How to Get a Wholesale Mortgage Rate first appeared on The Truth About Mortgage.


2021 Mortgage Rate Predictions: Mostly Flat But More Record Lows Possible

Yet another year is about to come to an end, and that means it’s time to look ahead to what next year has in store. I think just about everyone wants to see the back of 2020, though it wasn’t all bad news. The housing market actually held up surprisingly well, and mortgage lenders enjoyed [&hellip

The post 2021 Mortgage Rate Predictions: Mostly Flat But More Record Lows Possible first appeared on The Truth About Mortgage.


Current Mortgage Rates are Flat to Start the Week

It’s a quiet start to the week with mortgage rates holding steady. That could be a trend that persists for the remainder of the week as there’s really not much scheduled on the economic calendar this week.

Thursday and Friday are the only days where we really have some inflation data out that could impact rates. Read on for more details.

Where are mortgage rates going?                                            

Rates start the week flat

After a weaker than expected July monthly jobs report on Friday, we saw financial market participants move out of stocks and into bonds, pushing long-term Treasury yields lower.

Mortgage rates typically move in the same direction as the 10-year yield, so rates drifted a little lower as we stepped into the weekend. The week after a monthly jobs report is historically a slow one and that’s really what the economic calendar points to.

There’s not a whole lot of economic data out, which means the market could be more easily influenced by political and overseas events. If nothing happens on those fronts, we could be in for a boring week with mortgage rates holding steady.

Of course, even in the so-called “stormy week” last week, we didn’t see mortgage rates stray too far from where they’ve been the past couple months.

The writing on the wall has been for rates to increase over the coming weeks and months, but while they did hit a seven-year high in the Freddie Mac Primary Mortgage Market Survey (PMMS) last Thursday, the ascent has so far been made up of little baby-steps.

The Consumer Price Index reading for July on Friday will be the most closely watched economic event. Depending on what happens with that reading we could see mortgage rates move slightly up or down.

Rate/Float Recommendation                                  

Lock now before move even higher     

Mortgage rates are on track to steadily rise in the coming months as the Federal Reserve gets ready to raise the nation’s benchmark interest rate at least one more time this year.

If you’re planning on buying a home or refinancing your current mortgage, we strongly recommend that you take action sooner rather than later. The longer you wait, the more likely it is that you’ll be locking in a higher rate on your loan.

Learn what you can do to get the best interest rate possible.  

Today’s economic data:           

  • There are no significant economic reports out today.

Notable events this week:     




  • Fedspeak
  • EIA Petroleum Status Report
  • 10-Yr Note Auction


  • Jobless Claims
  • PPI-FD
  • Fedspeak


  • Consumer Price Index

*Terms and conditions apply.

Carter Wessman

Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.


How to Know if That Fixer-Upper Is a Money Pit

So, you’ve finally found your dream house. Sure, it may need a little work — okay, a lot of work — but you’re confident it will all be worth it in the end. That is, until your home renovation projects start to go down the toilet (or worse, the toilet starts falling through the floor). Here’s how to know if the home you are considering could be a great investment, or just a great way to empty your wallet.

Is A Fixer-Upper the Right Choice For You?

The right fixer-upper can be a great investment and a lot of fun.

The rise of seemingly simple, yet stylish home renovation television shows has made many homeowners eager to transform rough diamonds into neighborhood jewels. Couple this with the improved job market and an upswing in home values, and you have a tidal wave of homeowners willing to invest in fixer-upper dwellings.

In 2018, homeowners reported an average of $7,560 or more on major home improvements, up 17% over the previous year. But that doesn’t mean that these projects always go as planned — not everything gets wrapped up as quickly and neatly as it does on television. The same Home Advisor study shows an average of $416 on emergency spending. What many homeowners believe to be a simple “fixer-upper” can quickly turn into a “money pit,” transforming a dream project into an expensive nightmare.

Denise Krogman is a general contractor, designer and co-owner with her husband Rob, at RDK Design and Build, LLC. Krogman knows that whether you’re looking to buy a fixer-upper in the near future or remodel your current home, it’s worth paying attention to what separates a fixer-upper from an endless money pit.

The right fixer-upper can be a great investment and a lot of fun. But with every remodel there will be the unplanned, unforeseen incidentals that arise. If it needs more than a little ‘fixing up,’ you could find yourself in the midst of a complete remodel or a total scrap.

Fixer-Uppers vs. Money Pits

The first step to understanding what makes a home a fixer-upper is defining the term. Generally speaking, a fixer-upper is a house that doesn’t have serious problems and can be quickly and inexpensively refreshed, says Thomas Baker, building technology editor at This Old House.

Homeowners who have a big budget, a high level of DIY skills, and plenty of free time may reasonably see any house in deplorable condition as a “fixer-upper.” However, even these skilled, experienced homeowners who are initially excited about a big project may fail to properly plan for a remodel.

Without thorough research and planning, many homeowners are likely to exceed their spending limit and wind up with a money pit. Baker separates remodel-ready homeowners into two personas: the visionary and the accountant.

A visionary homeowner is someone who is emotionally invested in their property and can tolerate higher expenditures in order to execute their ‘vision.’ He or she isn’t worried about the resale value. An accountant weighs each cost of improvement against the likelihood of getting a return on investment at the time of sale. Ideally, homeowners should strike a balance between these two extremes, taking care not to risk their financial futures with unsustainable expenditures on improvements, but also acting as a steward, putting something back into the house so that future generations can enjoy what it has to offer.

A professional home builder, general contractor, or home inspector can help a homeowner assess the condition of the home before breaking ground and help keep a project in line once it’s begun.

Having that person come aboard your planning process is a great step to take. But what should they, and you, be looking for when it comes to fixer-upper warning signs?

Looking to get started with your dream home project? Check out our guide to the financial documentation and other paperwork you’ll need to begin the home loan process.

Fixer-Upper Red Flags

If you are committed to buying a home with a few imperfections, how do you know when those imperfections go from fixable to serious deal-breakers? When purchasing a fixer-upper, a homeowner should always look beyond the surface, says Sarah Boardman-Miller, an interior designer and construction consultant. It’s important to distinguish between a home with a lot of “cosmetic” needs, as opposed to those that need major (think structural) overhauls.

Depending on the ‘fix-up’ budget, one can look past a dated or poorly laid out kitchen or bath. I like a house that has not been touched. It might be dated and original everything, but these are usually good houses. Do your homework. Was the previous owner there for 40 years? Is it clean? Well-kept?

When most people watch the [TV] shows, so much of the process is cosmetic … from new cabinets, to counter tops, lighting and tile. Often homes are simply outdated, are decorated in poor taste, or just in need of a little TLC. Cosmetic fixes can be quick and cost-effective, and completely change the look of the house.

That being said, homeowners should stay on the lookout for any red flags. Both Krogman and Boardman-Miller say foundational issues, roofing repairs or replacement, and electrical or plumbing problems may require “gutting,” which can send a home remodeling project into an expensive tailspin.

Krogman adds that her team is careful about homes that need footprint changes, such as the removal or addition of walls or entire rooms. It’s best if the changes are minor. To avoid any surprises, it’s important to invest in a thorough home inspection, says Krogman.

Always request an inspection from a highly reputable company. It’s worth the extra expense. Be sure to ask a lot of questions and get documentation. When was the roof last replaced? Have there been any electrical or plumbing fixes? If there was any previous remodeling done, was it done by a reputable general contractor? And look for cracks in the foundation, sinking sidewalks, water spots or damages in the drywall. Those fixes or changes are rarely minor and can become quite costly.

Frank Lesh, an experienced home inspector who works for the certifying agency American Society of Home Inspectors, has two potential problems he wants homeowners to check for within their possible fixer-upper.

First, he says, examine the exterior. Take a look at the big picture. If it’s sitting in a valley, the home may be at risk for water problems.

Then I look at the general maintenance of the house exterior. Not whether there’s new paint, or flowers, but if the gutters and downspouts are in good condition and directed away from the house and if the roof is in reasonable shape.

Next, inspect for insects. Termites and carpenter ants can gnaw away at the bones of a home. It takes an expert insect inspection to discover the extent of the damage, to check behind finished walls and ceilings and to see if bugs are in the walls and subfloors.

A house is made of wood, and that’s what they eat. A good pest inspector can hear them or use infrared to see if they’re giving off heat behind the walls.

Manage Your Remodeling Expectations

One of the biggest dilemmas homeowners face when dealing with a fixer-upper is managing their expectations. Even when a home remodel is expertly planned, problems may still arise, Boardman-Miller says.

It is all about expectations and the ability to roll with what is happening. You have to focus on what needs to be done and cut out the extras that you may have been planning. Be realistic and stay on budget. If you do your homework, you could end up with a fair amount of equity in the finished house and get what you really want.

Baker says one of the most important things homeowners can do to avoid these costly issues is research, first into the home purchase process, then into contractors, home designers, and home improvement costs.

Find a contractor/carpenter who loves to work on houses and whom you can trust to make good decisions on your behalf. Without trust, these projects can become a nightmare. Take your time. Watch home TV shows, read magazines, talk to contractors, and go to the web to become an expert on the topic [of remodeling].

When homeowners embark on a home renovation the risks are great, but the rewards are even sweeter when everything is well planned and executed, Krogman says.

One man’s junk is always another’s treasure, so not only can you benefit financially, but you can give back by creating a beautiful home for your own family, or for someone else.

CHECKLIST: Tricks for Separating Fixer-Uppers from the Money Pits

  • Get a thorough home inspection
  • Determine whether improvements are structural or cosmetic
  • Do your research on what you’d specifically like done
  • Talk to your contractor/designer and get a plan in writing
  • Financially prepare for unforeseen issues
  • Manage your expectations and stay on budget

How do you know a home’s true value? Get a fast, no-obligation home estimate using our free tool.

Getting From ‘Before’ to ‘After’ Without Going Broke

At the end of a well-planned remodeling project, you can end up with the home features you want for a lower cost than the amount of equity you gained. It’s also possible that a lack of insight into your process and potential costs could leave you with an underwater (and maybe even unfinished) home, so it’s essential to make sure you know the facts before you swing a single hammer. But don’t let those potential pitfalls scare you away from a great opportunity for a smart investment. Just make sure you follow the checklist above and do the necessary homework to give yourself the best chance to come out ahead of the game.

Have you done your research and know of a great home you can benefit from investing in? If you are ready to explore buying your own fixer-upper, take the first step and get pre-approved online or contact a PennyMac Loan Officer today to discuss your options.

The views, information, or opinions expressed in this blog do not necessarily represent those of PennyMac Loan Services, LLC and its employees. The inclusion of links to third party sites is not intended to assign importance to those sites or to the information contained therein, nor is it intended to endorse, recommend, or favor any views expressed, or commercial products or services offered on these third party sites, or the vendors sponsoring the sites.


It’s time to make work-from-home regulations permanent

To meet the overwhelming demand for loans, independent mortgage bankers have quickly adapted to social distancing and remote working via work-from-home models that were previously unimaginable. Through this rapid growth in use of online and digital correspondence, today’s IMBs continue to originate more than half of all new mortgages.

These rapid changes have not been without pause for concern with regard to regulatory requirements and legal statutes as well as enforcement. Many states and regulatory jurisdictions restrict, and in some cases unilaterally prohibit, mortgage workers from conducting their activities outside of the branch office. Fortunately, a patchwork of executive orders, temporary waivers, and do-not-enforce letters have enabled the workforce to continue operating safely from their homes, albeit temporarily. In turn, IMBs have acted responsibly, putting in place policies, processes and protocols to ensure robust managerial supervision over all remote employees and security over confidential and non-public information.

We believe that the move to a remote work model is a long-term, technology-driven transformation which was well underway prior to the pandemic and will continue long after the pandemic. The Community Home Lenders Association took the lead early on this issue, with a letter to the Conference of State Bank Supervisors. Work from home safeguards our workforce as well as our customers and ensures that mortgage credit continues to be available for the housing market. We urge state and federal regulators alike to address these temporary work-from-home flexibilities and to make them formal and permanent.

Our proposal makes the case for smart regulation. Smart regulation does not require that we choose between stronger or weaker sets of rules. Flexibility is appropriate and strengthens compliance. Allow mortgage employees to work from home without requiring their home to be licensed as a branch location. Allow them to work from home without imposing an arbitrary distance requirement to and from a licensed office. Consumers need to be protected as well. Require robust corporate policies and procedures to ensure sound managerial supervision of employees. Require that consumers’ data and private information is kept confidential and secure.

Mortgage servicing requirements by non-banks are another concern. Regulation can be effective without imposing unnecessary compliance burdens or costs on IMBs and ultimately on their customers. The CSBS is in the process of soliciting comments on a proposal to create financial and management requirements for non-bank servicers (often IMBs) in all 50 states. This is in response to the strong growth in servicing by nonbanks in the 12 years since the 2008 housing crisis. It makes sense for CSBS to ensure that the largest servicers are properly regulated. It is the handful of large servicers that have grown quickly that pose the great majority of financial and systemic servicing risk. It also makes sense to close servicing regulatory gaps for non-agency mortgage loans.

However, CHLA is requesting adjustments to this proposal to protect smaller nonbank servicers from new unnecessary burdens. These changes would support the CSBS’s overall goal of closing regulatory gaps in supervision of servicers without impeding the consumers’ access to credit. Smaller IMB lender/servicers primarily originate federal agency loans — GSE, FHA, VA and RHS loans — and are already subject to robust capital, liquidity and corporate management requirements by Fannie Mae, Freddie Mac and Ginnie Mae. The proposed requirements are largely duplicative of existing GSE and Ginnie Mae requirements. Therefore, in its comment letter to the CSBS, CHLA is asking that smaller servicers with de minimis levels of nonagency loans should be deemed in compliance with the new CSBS requirements if they are a Fannie Mae or Freddie Mac servicer (or Ginnie Mae issuer) in good standing.

The letter also asks for state-by-state exemptions from the new requirements in states where a servicer has a de minimis number of loans serviced in that state. CHLA members are typical of smaller community-based lender/servicers; they originate and service loans primarily in one or only a few states, but also originate and service smaller levels of loans in a number of states in proximity to their main state(s) of operation. Without exemptions in states with de minimis servicing volumes, smaller servicers will simply abandon servicing in these states.

Without these changes, the risk is that many smaller servicers will simply exit the servicing business and the servicing industry will be more concentrated, meaning less competition and higher prices and less personalized service. The broader impact would be more concentration of nationwide mega-servicers, leading to more financial and systemic risk exposure.

The choice is not between either more or less regulation. It is how to achieve smart regulation. Smart regulation is the best way to protect consumers and reduce risk, without imposing unnecessary compliance burdens on small lenders and the consumers they serve.


Mortgage and refinance rates today, January 8, 2021

Today’s mortgage and refinance rates 

Average mortgage rates just inched higher yesterday. They’ve strayed some way from their all-time low, which was visited again on Monday. But they remain in the uberlow range.

This morning’s employment data for December was much worse than expected. And normally, that would trigger a significant fall. But perhaps not today. Because mortgage rates may rise yet again today.

Find and lock a low rate (Jan 15th, 2021)

Current mortgage and refinance rates 

Program Mortgage Rate APR* Change
Conventional 30 year fixed 2.75% 2.75% -0.06%
Conventional 15 year fixed 2.313% 2.313% -0.19%
Conventional 5 year ARM 3% 2.743% Unchanged
30 year fixed FHA 2.438% 3.415% Unchanged
15 year fixed FHA 2.313% 3.253% Unchanged
5 year ARM FHA 2.5% 3.226% Unchanged
30 year fixed VA 2.308% 2.479% +0.06%
15 year fixed VA 2.063% 2.382% Unchanged
5 year ARM VA 2.5% 2.406% Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

Find and lock a low rate (Jan 15th, 2021)

COVID-19 mortgage updates: Mortgage lenders are changing rates and rules due to COVID-19. To see the latest on how coronavirus could impact your home loan, click here.

Should you lock a mortgage rate today?

I would. Mortgage rates are higher and still appear to be heading upward.

Nevertheless, it looks as if I’m going to have to eat some humble pie. The sharply higher rates that I anticipated haven’t materialized. Yes, they’re up and probably still rising. But not as much as I expected.

Often, investors position themselves ahead of changes by buying or selling early in response to looming threats or opportunities. But current signs suggest they’re not doing so in any extreme way in response to the Democratic Party’s clean sweep of the White House and both houses of Congress.

Rise delayed

Had they done so, US Treasury bond yields (and the mortgage rates that often shadow them) would have risen even further. But it looks as if investors are largely waiting until the extra demand for government debt (and the extra supply of those Treasury bonds) actually arises.

And, even then, the economic impact of the pandemic might moderate — or even cancel out — those rises, at least for the months between now and a return to normalcy. When that happens, expect much higher mortgage rates.

When it comes to rate forecasts, I rarely regret an overabundance of caution. And those who took my advice quickly will have locked at a record low.

But today I’m scaling back my pessimism. And my personal rate lock recommendations are changing again:

  • LOCK if closing in 7 days
  • LOCK if closing in 15 days
  • LOCK if closing in 30 days
  • FLOAT if closing in 45 days
  • FLOAT if closing in 60 days

Still, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So be guided by your gut and your personal tolerance for risk.

Market data affecting today’s mortgage rates 

Here’s the state of play this morning at about 9:50 a.m. (ET). The data, compared with about the same time yesterday morning, were:

  • The yield on 10-year Treasurys rose to 1.09% from 1.07%. (Bad for mortgage rates) More than any other market, mortgage rates normally tend to follow these particular Treasury bond yields, though less so recently
  • Major stock indexes were higher on opening. (Bad for mortgage rates.) When investors are buying shares they’re often selling bonds, which pushes prices of those down and increases yields and mortgage rates. The opposite happens when indexes are lower
  • Oil prices rose to $51.58 from $50.67 a barrel. (Bad for mortgage rates* because energy prices play a large role in creating inflation and also point to future economic activity.) 
  • Gold prices fell to $1,872 from $1,912 an ounce. (Bad for mortgage rates*.) In general, it’s better for rates when gold rises, and worse when gold falls. Gold tends to rise when investors worry about the economy. And worried investors tend to push rates lower
  • CNN Business Fear & Greed index — Jumped to 71 from 65 out of 100. (Bad for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are better than higher ones

*A change of less than $20 on gold prices or 40 cents on oil ones is a fraction of 1%. So we only count meaningful differences as good or bad for mortgage rates.

Caveats about markets and rates

Before the pandemic and the Federal Reserve’s interventions in the mortgage market, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. The Fed is now a huge player and some days can overwhelm investor sentiment.

So use markets only as a rough guide. They have to be exceptionally strong (rates are likely to rise) or weak (they could fall) to rely on them. But, with that caveat, so far they’re looking likely to move higher today.

Find and lock a low rate (Jan 15th, 2021)

Important notes on today’s mortgage rates

Here are some things you need to know:

  1. The Fed’s ongoing interventions in the mortgage market (way over $1 trillion) should put continuing downward pressure on these rates. But it can’t work miracles all the time. And read “For once, the Fed DOES affect mortgage rates. Here’s why” if you want to understand this aspect of what’s happening
  2. Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read How mortgage rates are determined and why you should care
  3. Only “top-tier” borrowers (with stellar credit scores, big down payments and very healthy finances) get the ultralow mortgage rates you’ll see advertised
  4. Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the wider trend over time
  5. When rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
  6. Refinance rates are typically close to those for purchases. But some types of refinances are higher following a regulatory change

So there’s a lot going on here. And nobody can claim to know with certainty what’s going to happen to mortgage rates in coming hours, days, weeks or months.

Are mortgage and refinance rates rising or falling?


I’m expecting mortgage rates to rise again today.

And that’s in spite of this morning’s official employment situation report for December. In the current circumstances, many regard that as the single most important monthly economic report.

And this morning’s report showed a loss of 140,000 jobs in December, the first fall since April. Analysts had expected a gain of 50,000, which itself would have looked bad compared with November’s +245,000. Still, the unemployment rate remains unchanged at 6.7%.

This suggests the economic consequences of the pandemic are beginning to bite again as new cases, hospitalizations and deaths surge. And that the growth in gross domestic product and employment that we need to get back to the time immediately preceding COVID 19 is stalling.


Over the last several months, the overall trend for mortgage rates has clearly been downward. And a new, weekly all-time low was set on 16 occasions last year, according to Freddie Mac.

The most recent such record occurred on Jan. 7. But that’s already been overtaken by events. And rates are now appreciably higher.

Expert mortgage rate forecasts

Looking further ahead, Fannie Mae, Freddie Mac and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.

And here are their current rates forecasts for each quarter of 2021 (Q1/21, Q2/21, Q3/21 and Q4/21).

However, note that Fannie’s (released on Dec. 15) and the MBA’s (Dec. 21) are updated monthly. But Freddie’s are now published quarterly. And its latest was released on Oct. 14. So that’s looking distinctly stale.

The numbers in the table below are for 30-year, fixed-rate mortgages:

Forecaster Q1/21 Q2/21 Q3/21 Q4/21
Fannie Mae 2.7% 2.7% 2.8% 2.8%
Freddie Mac 3.0% 3.0% 3.0% 3.0%
MBA 2.9% 3.0% 3.2% 3.2%

So predictions vary considerably. You pays yer money …

Find your lowest rate today

Some lenders have been spooked by the pandemic. And they’re restricting their offerings to just the most vanilla-flavored mortgages and refinances.

But others remain brave. And you can still probably find the cash-out refinance, investment mortgage or jumbo loan you want. You just have to shop around more widely.

But, of course, you should be comparison shopping widely, no matter what sort of mortgage you want. As federal regulator the Consumer Financial Protection Bureau says:

Shopping around for your mortgage has the potential to lead to real savings. It may not sound like much, but saving even a quarter of a point in interest on your mortgage saves you thousands of dollars over the life of your loan.

Verify your new rate (Jan 15th, 2021)

Mortgage rate methodology

The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.


Refinancing just got more expensive, thanks to this new fee

Editor’s note: The 0.5% refinance fee discussed in this article was originally set to roll out on September 1, 2020. But on August 25, FHFA announced it will delay rolling out the new fee until December 1, 2020. This article will remain on the site for archival purposes.

A new FHFA fee has raised your hoped-for refinance rate

The Federal Housing Finance Agency (FHFA) just announced a hefty new fee for mortgage refinances.

The ‘Adverse Market Refinance Fee’ is a 0.5% charge — or $500 for every $100,000 borrowed — on almost all conventional refinances.

Lenders are responsible for the fee, but they are already passing it on to refinance applicants.

Most refinancing homeowners will not pay the fee out of pocket, but take a higher rate instead. How much higher? Read on to find out.

If you’re considering a refinance, here’s what to know about the new fee and some options to avoid it.

Find and lock a low refinance rate (Jan 15th, 2021)

How much higher will refinance rates go?

Note: The new fee applies only to current homeowners who plan to refinance, and had not locked a refinance rate before the FHFA announcement on August 12, 2020. Those purchasing a home will not be affected.

The Adverse Market Refinance Fee has to be paid by lenders, on any refi loan being sold to Fannie Mae or Freddie Mac (the entities overseen by FHFA). Fannie and Freddie buy more than half of all mortgages.

The fee doesn’t officially apply until September 1. However, it takes weeks for lenders to deliver a closed loan to Fannie Mae or Freddie Mac. So lenders have already started including the fee in most unlocked loans — even loans that were already in process but not locked.

Higher fees for lenders are typically passed on to borrowers in the form of higher rates.

So just how much will the Adverse Market Fee affect refinance rates?

One firm estimates rates could spike by 0.375% or more.

One firm estimates refinance rates could spike by 0.375% or more.

To put that in perspective, 30-year rates have dropped almost a full percentage point since the beginning of 2020. And rates are down more than 2% from their recent high in 2018.

So even if refinance rates rise due to the new rule, they’ll still be incredibly low compared to recent history.

Plus, some experts estimate the new fee will only raise rates by 0.125%. So that 2.875% rate you’ve been dreaming of likely went up to 3.0% — at least.

It’s not a welcome time for higher rates. Millions of families are working with tight budgets due to COVID. Low-cost refinancing is crucial for many homeowners.

For some, even a marginal rate hike could push them out of the eligibility zone for refinancing.

Find and lock a low refinance rate (Jan 15th, 2021)

How the Adverse Market Fee could affect refinance savings

Take a look at one example.

Imagine you bought a $300,000 house about a year ago. You made a 10% down payment and got a 4% interest rate.

Here’s how your mortgage refinance might look with and without FHFA’s new fee.

  Without The Adverse Market Fee With The Adverse Market Fee
Loan Balance $265,000
Current 30-Year Rate 4.0%
Current Monthly Payment $1,400
Refinance Rate 3.25% 3.625%
New Monthly Payment $1,170 $1,230
Total Interest Over 30 Years $152,400 $172,600

*Rates and payments shown are for sample purposes only. Your own refinance rate and payment will vary. Check today’s rates here.

In this example, refinancing with the new fee still gets you a lower monthly payment than the original mortgage.

But the homeowner ends up paying more in interest over 30 years than they would have if they hadn’t refinanced.

And they only save $170 per month with the fee versus saving $230 without the fee.

In some cases, the new Adverse Market Refinance Fee could even stop marginal borrowers from refinancing because their debt-to-income ratio will be too high as a result of the new charge. 

“This is very disappointing, and the absolute wrong policy at the wrong time,” said Vince Malta, President of the National Association of Realtors.

Malta explained that the new fee “could cost homeowners thousands of dollars, which will destabilize the market and take away opportunity.”

How to avoid the new Adverse Market Refinance Fee

Fannie Mae and Freddie Mac purchase a huge number of mortgages, meaning their new fee will have a wide-reaching impact.

But there are still ways to avoid the fee — and the higher rate — when you refinance.

  1. Portfolio loans — Many refinancers’ best bet. These are mortgages that banks originate and either hold onto or sell to private investors, rather than selling them to Fannie Mae or Freddie Mac. Because portfolio loans are not purchased by Freddie or Fannie, the 0.5% fee won’t apply. The downside is that portfolio loans typically come with higher rates in the first place
  2. Jumbo loans — Anything over $548,250 in most areas won’t be subject to the new fee, either
  3. Government-backed loans — The same goes for government-backed mortgages, including FHA, VA, and USDA loans

However, FHA and USDA loans have continuing mortgage insurance. So if you currently have a conventional loan without PMI, refinancing to one of these likely won’t be your best bet.

As always, shop around to find the best loan type and lowest rate for you.

If you’re not sure what to look for, try working with an independent mortgage broker who can break down rates and fees to find the best option on your behalf.

Verify your refinance eligibility (Jan 15th, 2021)

Background on the Adverse Market Refinance Fee

Coronavirus has seriously destabilized the mortgage market.

With borrowers being laid off and job stability on the line for many, lending has become an extra-risky prospect.

The new Adverse Market Refinance Fee is just another in a long line of moves by mortgage regulators, meant to add an extra financial cushion and reduce risk during these uncertain times.

But unfortunately, the FHFA’s recent move could come at a cost to borrowers.

“Requiring Fannie Mae and Freddie Mac to charge a 0.5% fee on refinance mortgages they purchase will raise interest rates on families trying to make ends meet in these challenging times,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA).

“This means the average consumer will be paying $1,400 more than they otherwise would have paid,” says Broeksmit.

“Even worse, the September 1 effective date means that thousands of borrowers who did not lock in their rates could face unanticipated cost increases just days from closing.”

Find and lock a low refinance rate (Jan 15th, 2021)

Conflict over FHFA’s new refinance policy

The new refinance charge represents an additional cost at the very time the government is also trying to reduce loan expenses.

For instance, the Federal Reserve is spending $40 billion a month for agency mortgage-backed securities “to help reduce the cost of buying or refinancing a home and stimulate the broader economy,” according to a joint statement from industry leaders. 

“This action by the GSEs,” they say, “raises those costs, contradicting and undermining Fed policy.”

Such policy conflicts can be a big deal on Capitol Hill, giving opponents of the new fee grounds to have it reversed. And with an election coming up in a few months, future policy changes aren’t unthinkable.

Low refinance rates are still available

Even with the new fee, it will still be possible for many homeowners to find low refinance rates.

Remember, mortgage rates set new records more than once in the past few months. And they’re set to stay low all year.

As always, the trick is to shop around for a lender offering the best refinance rates for your situation.

Verify your new rate (Jan 15th, 2021)