The Federal Housing Finance Agency (FHFA) announced in August that it would be charging an additional refinancing fee to offset losses due to COVID-19. The new fee was expected to come into effect yesterday, September 1st, but at the last minute, the FHFA rescheduled it to December 1st. We’re still in the midst of a recession, so the FHFA doesn’t want to make too many changes too early.
The new fee exempts refinance loans with balances below $125,000, affordable refinance products, Home Ready, and Home Possible. Applicable loans, which are cash-out and limited cash-out refinance loans, will have 0.5% added to each transaction. While this fee applies directly to lenders, it also indirectly affects borrowers in the form of higher interest rates. While the FHFA certainly wants to recoup their projected $6 billion in losses, they’ve agreed that now is not the time; the economy still needs to recover first.
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A cash-out refi is a type of mortgage refinancing in which one borrows more than the remaining balance on their current mortgage, with the difference as cash. With interest rates as high as they are right now, refinancing for a better rate — the most frequent incentive to refinance — isn’t going to happen. That means a greater percentage of refis are of the cash-out type.
It’s uncertain whether the number of cash-out refis is increasing; their percent share is going up mainly due to fewer rate refis. There are other reasons to see an increase in cash-out refis, though. One is that retirees, whose numbers are presently on the rise, are wanting to invest money in repairing or remodelling their homes, and are using the cash from a refi to do so. In addition, two other options for cash, home equity loans and lines of credit, are no longer tax-deductible to the extent they were previously.
If you’re considering a refi, give us a call. We don’t handle loans, but have over 25 years of experience with lenders in LAs South Bay, and can help you select from the best.