Refinancing could get less expensive with two new programs hitting the market in 2021: Fannie Mae RefiNow and Freddie Mac Refi Possible.
With reporting by Aly J. Yale and Tim Lucas
Breaking: Fannie Mae's RefiNow will be available starting June 5, 2021 and Freddie Mac's Refi Possible will be available August 30, 2021.
Two new programs – Fannie Mae’s RefiNow and Freddie Mac’s Refi Possible – could soon help many homeowners refinance less expensively.
One of the barriers to refinancing is the high cost.
Millions of homeowners missed out on the refi boom of 2020 because the refinance didn’t pencil out: it would take too long to recoup the costs, especially for those with lower loan amounts.
These programs seek to do something about that.
The Federal Housing Finance Agency (FHFA), the overseer of Fannie Mae and Freddie Mac, is soon to issue a new kind of refinance sometime in the summer of 2021.
It should help bring refinance costs down considerably, by:
This is a fee introduced in late 2020 which added a fee to most refinances equal to 0.50% of the loan amount.
For example, on a $250,000 mortgage, the refinancing homeowner had to either pay a $1,250 fee out-of-pocket, roll it into the new loan, or accept a higher interest rate in lieu of the fee.
The fee’s goal was to compensate for greater risk in the market due to the coronavirus pandemic.
Yet, it was just enough to keep many homeowners from refinancing.
It is. The appraisal is one of the more expensive parts of refinancing.
Homeowners will receive a credit from the lender of $500 or the actual appraisal cost, whichever is lower.
Many refinancing homeowners receive an appraisal waiver when they apply for a refinance, though. They will not receive a credit, as there is no appraisal cost. But a waiver is even better: you don’t have to wait for an appraisal to be done.
Waivers are determined by Fannie Mae or Freddie Mac’s computerized underwriting system at time of application.
These lower-cost refinance programs will be available for homeowners with Fannie Mae- or Freddie Mac-backed mortgage loans.
That doesn’t mean you make payments to Fannie Mae or Freddie Mac. One of these agencies might own the loan even though you make payments to Bank of America, US Bank, Wells Fargo, or other servicers.
To see if an agency owns your loan, check the Freddie Mac and Fannie Mae loan lookup tools.
Those with an FHA, VA, or USDA loan will not be eligible.
Homeowners also need to have:
In addition, the refinance:
As an example, your current principal and interest payment is $1,200 per month and your rate is 4.5%. You apply with a lender, who can offer 3.75% with a payment of $1,100 per month. You would be eligible, assuming you meet other criteria and underwriting standards.
To qualify for the adverse market fee waiver, your new loan amount must be at or below $300,000.
Additionally, expect other eligibility restriction will apply and to be generally the same if you have a Fannie Mae or Freddie Mac loan. This program is still in early stages and may change by the time it rolls out.
A refinance only makes sense if it saves you money over the long term.
Typically, refinancing homeowners use the “break-even” method. They calculate how long it will take to make back the cost of refinancing.
If closing costs equal $3,000, it will take 30 months to break even with $100-per-month savings.
Now assume this same homeowner reduces her refi costs to $1,500, thanks to RefiNow or Refi Possible. Now, it takes just 15 months to recoup costs.
The refi becomes much more attractive.
These programs could be especially helpful to those with low loan amounts.
It’s very difficult to recoup refi costs if you have a low loan amount, say under $200,000. You have to drop your rate significantly to see worthwhile savings.
Example:
Closing costs on the $150,000 mortgage, unfortunately, are not usually that much lower than for bigger loans. So it takes much longer to recoup costs.
RefiNow and Refi Possible could make refinancing “pencil out” for homeowners with low loan amounts.
Fannie Mae's RefiNow will be available starting June 5, 2021 and Freddie Mac's Refi Possible will be available August 30, 2021.
Keep in mind, though, that lenders must implement these programs internally before they become available to consumers. Check back often for updates.
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.