The time is now if you want or need to refinance your mortgage. In a partial reversal of their announcement last week, Fannie Mae and Freddie Mac have delayed the implementation of the 0.5% fee for refinances until December. This is great news which I for one expected as it takes any negative political impact and bad press off of the table prior to the November election. Anything that threw water on an extremely hot mortgage market would likely be a drag on the incumbent, especially if it had the possibility of slowing the economy.
If this motivates you to begin the process, you need to consider a few things.
- Know how quickly your lender can close – Top on your list should be how fast a potential lender can get your deal done. Many large institutions are still only locking for 75 or sometimes even 90 days depending on their volume. This means that if they take the full amount of time, you may not close in time. Since the original announcement referenced that loans needed to fund by September 1st, I would assume that the same rules will apply for December. If this is the case, you could see an increase in your costs at the end of the process.
- Know your lenders policy regarding the fee – To avoid end of process surprises for their clients, some lenders may base their policy for the fee on the application date and not the funding date. By this I mean a bank could set a policy by which all applications received after a certain date will have the fee applied to the closing costs. This prevents unhappy clients who could feel misled about their costs while protecting their bottom line. Remember, this is a fee or more accurately a pricing adjustment that the banks need to pay Fannie Mae and Freddie Mac. As expected, most are passing the added cost on to the consumer instead of absorbing it. There will be a period of time that banks and other lenders will be exposed to losses on applications received before the fee but that are closing after it is enacted. These institutions will need to pay this commensurate with what Fannie Mae and Freddie Mac dictate and they may make the decision to begin charging the fee before December.
- Be organized and ready to move quickly – In times of heavy volume and during times when there is a date certain change such as this fee, banks and other lenders focus heavily on dates an milestones. The processing every deal regardless of timing is dependent on the borrower being responsive and delivering their documents quickly, but during the aforementioned time us becomes a necessity. When cost is concerned, lenders can and will pass costs like extension fees for rates on to the borrower when they can document that the delays were their fault. This fee will likely be similar and of you miss the window because you moved slowly or did not send in a document when it was needed, you may end up costing yourself 0.5% of the loan.
It is important to remember that this is a stay of execution and not a pardon. We rarely get second chances and with average 30-year fixed rates under 3% for the best borrowers. All things being equal, there is not likely to be a better time to take advantage of potential savings from a mortgage refinance, so there is little benefit is waiting for that 0.125% better rate. My recommendation is to at the very least take the time to get a full analysis of your situation from a reputable lender and if it makes sense, go for it.