The Latest fee Burden on Refinancing! Is Refinancing Your Mortgage Still a Smart Move?

During the pandemic, the price of the real estate plummeted. With this, the mortgage rates also experienced a reduction. That meant that many people were attracted to the possibility of refinancing their home mortgage at lower interest rates and enjoy long term savings.

The benefit of a low-cost mortgage refinance:

During August 2020, Nerdwallet’s daily survey discovered that the mortgage rates for 15 years fixed-rate-loan and 30 years fixed-rate-loan have remained suspended at 3% only. Following this, the Black Knight company, which peruses the mortgage analytics, observed that almost 18 million families could reduce their mortgage interest payments at least by 0.75%. This could account for an average of $300 in savings every month.

Imagine over a course of 15 years; this would mean a treasure trove of $54000 in the savings.

The stealthy move by Fannie Mae and Freddie Mac:

Fannie Mae and Freddie Mac are government-backed financing companies that bought and securitized 47% of mortgage deals at the beginning of this happening year. On Aug 12, they unceremoniously revealed an additional fee for refinancing mortgages. Freddie made it sound as a way to hedge against the uncertainty brought about by the coronavirus but, that’s where this move is nonsensical. This sales tax is 0.5% on the cost of refinancing.

According to the Mortgage Bankers Association, a typical cost of refinancing is almost $324000, and deriving from this, the tax would amount to $1620. It could be levied on the borrower either as an upfront closing cost, added to the loan principle, or levied as an increment in the interest payable of about 0.125%.

The fallacy of the COVID risk argument!

This sales tax is neither imposed on government home loans, jumbo loans nor even purchase loans. And that is why the criticism breeds. Refinance loans are essentially risk-free. They pose a lower risk of default than purchase loans. It is because the homeowner needs to present an impeccable credit score and credit report to win a lower interest rate.

The probability is that the person pitching for a refinance deal would be making timely installment payments and have a lucrative source of income. Thus this tax is like additional insurance to foresee the accidental risk of an experienced and mature veteran driver, while his scrupulous son steers wildly without the additional insurance cost. Yes, it is plain senseless. Yet it is there.

However, you should still try to grab this opportunity for refinancing your current mortgage at a lower interest rate despite this additional burden because, in the long run, you are still at the greener end.