image of market fee declining

Homeowners with a conventional mortgage who are working to refinance their loan to a lower interest rate have a new fee that will be added. At Indigo Mortgage, we’ve been advising that this fee was coming for the last few months and now it’s here.

The fee is known as the Adverse Market Fee and it adds a .5% fee on to all conventional mortgage refinances; it does not affect VA loans or purchases for the initial home loan. The fee has been added because Fannie Mae and Freddie Mac were losing money, because the mortgage rates have dropped so much. Some borrowers who refinanced during the low rates in late 2019 are refinancing again since rates have dropped that much more. Since those loans were only 6 to 12 months old, they’d had no time to mature, so Fannie and Freddie were taking a bath with early payoffs.

It’s important to note this is not .5% added to the interest rate, but rather a .5% fee that charged to get the loan. For example, on a $250,000 loan amount, the adverse market fee will add $1,250 to the cost of the loan. It can be looked as a .5% discount fee. Lenders are not absorbing this fee but are passing it along to the borrower.

However, even though the Adverse Market Fee may add to the cost of the loan, the good news is that mortgage rates are still so low, it may still make sense to refinance and pay this fee as your long-term savings could be huge. Contact Indigo Mortgage with any questions about mortgage loans or refinances.

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