A Pandemic Refinance Fee Is Going Away Soon. Here’s How Much You’ll Save

A photo to accompany a story about refinancing Andrew Harrer/Bloomberg via Getty Images
The Federal Housing Finance Agency announced last week it is eliminating the Adverse Market Refinance Fee, which is expected to positively impact future refinances.
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It’s been a great year for homeowners looking to refinance. It just got even better.

The Federal Housing Finance Agency announced last week it is eliminating the Adverse Market Refinance Fee. That’s on top of surging home prices and mortgage rates that are still near historic lows. Put it all together and homeowners continue to see big upside to refinancing.

With the fee that’s now going away, lenders paid an extra 0.50% of the loan balance on conforming conventional refinance loans sold to Fannie Mae or Freddie Mac. This fee was likely passed onto borrowers in the form of higher rates or higher closing costs. But as of Aug. 1, 2021, the fee will no longer apply. 

Borrowers should see the savings priced into their refinance offers right away, because any loan application submitted today isn’t likely to close until after the fee is dropped. “It’s a win for borrowers,” says Greg McBride, chief financial analyst at Bankrate, which like NextAdvisor is owned by Red Ventures. “It will result in an even greater savings for homeowners that are looking to refinance their mortgages.”

The fee was initially instituted in December 2020 to help cover the cost of borrowers defaulting on their mortgages. What started amid widespread economic relief measures during the thick of the pandemic has diminished in need. As of April 2021, 2% of single-family mortgages guaranteed by Fannie Mae or Freddie Mac were in forbearance — a significant drop from the 5% in forbearance roughly a year prior.

If you have been considering refinancing your mortgage, here are the types of loans this fee impacted and how much you stand to save due to this change. 

What This Means for Your Mortgage Refinance Plans

McBride estimates the fee could have likely increased refinance rates slightly for applicable loans while it was imposed — or it could have been buried in closing fees. Either way, he says the cost was likely getting passed on to homeowners somehow.

What the change looks like now: Borrowers probably won’t see savings applied in just the  refinance rates alone, but more likely a reduction in the overall costs. For example, a $300,000 loan with the Adverse Market Refinance Fee passed on to the borrower would have cost an additional $1,500, which is 0.50% of the loan amount. So borrowers stand to save on these extra fees now.

Who is affected: Loans affected by this fee change are conforming conventional refinance loans with loan amounts of $125,000 or more. “It is a majority of borrowers that will benefit from this,” McBride says. 

Who is not affected: For anyone looking to refinance into a USDA loan, FHA loan, or VA loan, the Adverse Market Refinance Fee never applied.

What you need to do: The fee only applies to applicable loans lenders sell to Fannie Mae or Freddie Mac before Aug. 1, 2021. If you’ve recently applied for a refinance or are considering refinancing soon, there’s isn’t much you’ll need to do to access this savings. When you first apply, it typically takes 30 days or longer to close on a refinance, so most lenders should be pricing the savings into current or recent applications. However, it may be worth asking your lender if it will be passing this savings on to you.

Refinancing Still Needs to Make Financial Sense 

For most homeowners looking to refinance, the elimination of this fee is icing on the cake. It isn’t likely to be the main driver behind making the numbers of a refinance work.

Aside from the potential to get a cheaper refinance, it still needs to make financial sense for your personal situation. “For refinancing to make sense, you have to be able to reduce your interest rate 0.50% to 0.75% and expect to be in the home for a few years,” McBride says. 

When you refinance, the closing costs can run anywhere from 3% to 6% of your loan amount. For a $300,000 loan, you’re looking at potentially paying $10,000-plus to refinance. Depending on how much you’re saving, it can take years to offset those fees. If you’re saving $200 a month in interest, it will take 50 months, or over four years, to break even. 

Loan AmountClosing costsMonthly Interest SavingsBreak Even Point
$300,000$9,000-$18,000$20045 to 90 months
$300,000$9,000-$18,000$25036 to 72 months
$300,000$9,000-$18,000$30030 to 60 months

If you’re planning on moving before reaching the break-even point, refinancing may not be the best option. But, as your saving rate increases, the break-even point drops.

You’ll also want to compare offers from several different mortgage lenders. By shopping around for a mortgage, you can ensure you’re not overpaying for closing costs and you’re getting a favorable interest rate.