There are many reasons consumers are currently choosing to refinance their mortgages, but everything boils down to one main goal: saving money.

However, with the Federal Housing Finance Agency’s (FHFA) new mortgage refinance fee set to take effect on Dec. 1, some homeowners are wondering if now is still a good time to refinance. Here is what you need to know about this fee and how it may impact your transaction.

What is the fee?
The FHFA – the U.S. regulatory agency that oversees the secondary mortgage market – announced this summer that it would begin imposing a 0.5 percent fee on mortgage refinances starting on September 1. However, after strong pushback from the housing industry, that date was moved to December 1.

The fee will be imposed on loans that are resold to Fannie Mae and Freddie Mac, the federally-backed mortgage companies that buy about two-thirds of all U.S. mortgages.

In addition to delaying the 0.5 percent charge, the FHFA said Fannie and Freddie will exempt loans of less than $125,000, nearly half of which are comprised of lower income borrowers at or below 80 percent of area median income.

In a news release, the FHFA explained, “the fee is necessary to cover projected COVID-19 losses of at least $6 billion at the Enterprises. Specifically, the actions taken by the Enterprises during the pandemic to protect renters and borrowers are conservatively projected to cost the Enterprises at least $6 billion and could be higher depending on the path of the economic recovery.”

The fee will be charged directly to lenders, who will then, most likely, pass it on to customers. While December is still several weeks away, Wayne Lacy, branch manager with Cherry Creek Mortgage in Okemos, says consumers may start seeing the extra fee now.

“When we close a loan at the lender level, the money gets dispersed and then we bundle the loan with similar products and sell it on the secondary market,” he said. “That process takes anywhere from 30-40 days, sometimes longer, so loans that are closing today will be delivered close to that December 1 date, possibly after. Because the fee is due upon the delivery date, lenders are starting to build it into their pricing now.”

The way in which borrowers will be charged may differ, depending on the lender. It might be through increased closing costs, a slightly higher interest rate, or it may be added to the loan amount. To put it into perspective, on a $300,000 loan, the fee will add $1,500 in costs.

Should I still refinance?
As part of the economic fallout from COVID-19, mortgage rates have fallen to all-time lows. According to Freddie Mac, the average interest rate on a 30-year fixed-rate mortgage was 2.86 percent as of early September, which was the lowest level in almost 50 years.

With rates so low, it is a great time to refinance, but the news of a hike in costs might give some borrowers pause. After all, the goal of refinancing is to save money, not spend more. But Lacy says if a refinance made sense for you pre-fee, it will likely still make sense post-fee.

“In this low-rate environment, I think refinancing can be advantageous for many homeowners, despite the added fee,” he said. “But just like with any financial decision, a thorough cost/benefit analysis must be done. I suggest consumers sit down with a lender to crunch the numbers. This will give you a clear picture of how much you can save and whether refinancing is the best option for you.”

For a list of local lenders who can help, visit the Greater Lansing Association of REALTORS® website at www.lansing-realestate.com.