Refinancing your mortgage is a good way to lower your monthly payments and save money on interest over the life of your loan. And now it may be even more cost effective for you to swap your existing mortgage for a new one.
The price of an unfavorable market goes away
In December 2020, Fannie Mae and Freddie Mac (government-sponsored mortgage buying organizations) implemented 0.50% commission for all mortgage refinancing with a loan amount of USD 125,000 or more. This fee was called the “unfavorable market refinancing fee”, and it came at a time when the situation with both the pandemic and the economy as a whole was much worse.
That 0.50% was a commission that Fannie Mae and Freddie Mac charged lenders, not consumers directly. However, refinancing lenders basically passed this fee onto their customers so that they didn’t have to gobble it up on their own and eat up their profits.
Why does the commission disappear?
When the economic crisis did come to an end, about 5% of borrowers with mortgages secured by Fannie Mae or Freddie Mac had their own loans. patience because they couldn’t handle their payments. Fannie and Freddie mortgages are now close to 2% in tolerance.
Moreover, the US economy is now in a much stronger position than it was when Fannie Mae and Freddie Mac decided to introduce this board. Thus, the risks of lending are lower.
It is for these reasons that eliminating the commission at this stage makes sense. It is easy to argue that we are no longer dealing with adverse market conditions.
Should you refinance your mortgage?
Right now, refinancing rates historically extremely competitive, so now is a good time to get a new home loan if you can qualify for a loan at a low rate. However, whether you can do this will largely depend on your credit rating…
Typically, a credit rating in the mid to top 700 range gives you a solid position to get the best refinancing rates. If your bill needs improvement, he may pay to raise it before applying for a new home loan.
Of course, if you already have a low interest rate on your mortgage, then refinancing may not make sense. Generally, when refinancing, you should aim to lower your home loan interest rate by about 1%. If you cannot do this, you can keep your existing loan to avoid paying what can be overwhelming. closing costs on your new mortgage.
And speaking of closing costs, you need to make sure that you are going to stay in your home long enough to make up for those fees. Refinancing your mortgage can, for example, lower your monthly payments by $ 200. But if you need to spend $ 5,000 in advance on closing expenses, it will take you 25 months to pay off, and only from that point on will you really start getting savings.
If you are not planning to relocate for several years, refinancing might make sense. But if you’re preparing to move in a year or two, then refinancing may not be a very smart move.
If you are interested in refinancing, be sure to check with different lenders for what rates they are offering you. The good news is that you should be saving money as you don’t have to fight this commission for an unfavorable 0.5% market return. But it’s still worth comparing deals to make sure you really get the best deal.