Homeowners, if you’re thinking about refinancing your mortgage, it’s time to take the plunge.
Earlier this week, the Federal Housing Finance Agency announced that it would delay a 0.5 percent fee on new refinancings. Originally, the charge was set to go into effect on Sept. 1, but that has been pushed to Dec. 1 instead.
This means for a short while homeowners can take advantage of the lowest mortgage rates ever, plus they won’t have to pay this fee, which amounts to $1,500 on a $300,000 loan. Even though lenders are very busy with a flood of new applications these days, you should have no problem closing on a loan before the fee kicks in–if you start on your paperwork in the next few weeks.
If you’re still on the fence, here’s what you should know about the current climate for refinancing.
Why is now such a good time to refinance my mortgage?
“It’s an excellent time to refinance because the rates are probably some of the lowest rates we’ve ever seen,” said Dennis J. Quaranta, a mortgage broker at Funding Resources in Myrtle Beach, South Carolina.
The FHFA fee will be levied on mortgages under $125,000 that close on or after Dec. 1, but that means it will start getting priced into mortgages much sooner than that.
“Most lenders give themselves a 45-day window to close, so most lenders will start adding the adverse market fee back in October,” said Orlando Diaz, a senior loan advisor with Guarantee Mortgage in San Francisco, California. “The next six weeks is the crucial time to apply to avoid that adverse market fee.”
How long will my refinancing take?
Lenders are anticipating a rush of refinancing applications as people try to avoid the fee, so time is of the essence to get in your application, and you should anticipate delays before closing.
“Right now, refinances are taking about 45-60 days for our company, but I’m hearing 90 days for other companies,” Diaz said. “That’s why it’s better to start sooner than later because once that rate is locked in, you’re protected.”
“If there’s a tremendous amount of people coming in to do these refinances,” he said, “the lenders are going to get backed up with their processing.” He anticipates that most closings will take 45 to 60 days or more, rather than the 30 days it takes in slower times.
What are the benefits of refinancing my mortgage?
Because interest rates are so low, refinancing can help you lower your monthly payment. Similarly, if you choose a cash-out option, you may be able to tap into your home equity to help cover other expenses without significantly changing your monthly outlay.
Because of the coronavirus pandemic, Diaz said, “there’s a lot of uncertainty and it’s really important that people can refinance.” Doing so, he added, can help homeowners remain financially secure even while facing other hardships like possible loss of income or pandemic-related unemployment.
Quaranta said the need for that financial safety net is a big reason he believes the fee was postponed in the first place.
“That fee was hurting the average Joe Schmo middle-class person,” he said. “Why are you hurting these people now who are looking to do a cash out to protect themselves?”
Who does the fee affect?
The fee was initially intended to apply to all mortgage refinances, but when the FHFA announced the implementation delay, it also said that loans under $125,000 would be exempt.
On a $300,000 mortgage, the refinancing fee amounts to $1,500, which can be rolled into the monthly charges and paid over the life of the loan.
It’s likely that interest rates on mortgage refinances will go up again as Dec. 1 draws closer. Diaz said when the fee was initially announced, his company saw rates jump to 2.875 percent from 2.5 percent for refinance applicants.
If you’re considering a mortgage refinance, especially if your loan is worth more than $125,000, you should try to lock in your rate in the next month or two. Otherwise, you may have to pay more to cover the cost of a new fee that’s set to take effect on Dec. 1. If you’re still unsure or can’t qualify in time, you don’t need to fret too much.
You’ll still benefit from very low rates even after Dec. 1, according to Diaz.
There are reports that the Federal Reserve plans to keep its federal funds rate near zero for up to the next five years, although no announcement has been made.
When the coronavirus pandemic subsides and the economy starts to stabilize, “the housing market is going to be the backbone to the recovery,” he said. “Rates are still going to be historically low, and there will still be opportunities to refinance.”