Market Insights

How to Avoid New Mortgage Refinance Fees

Woman calculates different mortgage refinance fees to figure out which ones she can avoid.

While mortgage rates are at a record-low and have hovered below 3% since the end of July 2020, homeowners looking to refinance their mortgages could be dealing with higher costs soon because of a new “adverse market fee.”

The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, more commonly known as Fannie Mae and Freddie Mac—the government-sponsored enterprises (GSEs) were created to maintain a stable market. Fannie Mae and Freddie Mac guarantee roughly half of the mortgages in the United States. Beginning December 1,2020, they will start imposing a 0.5% fee on lenders who sell loans to them. This “adverse market refinance fee” will apply to many mortgage refinance loans, making both cash-out and non-cash-out refinances more expensive for some homeowners. 

According to the National Association of Realtors, the national median single-family home was worth $291,300 in the second quarter of 2020. The Mortgage Bankers Association said in a press release that, on average, the adverse market fee for refinancing would cost homeowners $1,400 more than usual. Not all lenders sell their mortgages. Discover® Home Loans keeps the loans they originate within their portfolio and services the loans internally. 

Couple discussing their options around avoiding mortgage refinance fees.

Want to avoid this refinancing fee, plus many of the typical fees that come along with refinancing your mortgage?  Keep reading to learn more.

Want to avoid this refinancing fee, plus many of the typical fees that come along with refinancing your mortgage?  Keep reading to learn more. 

Fees to Expect when Refinancing Your Mortgage

Even without the adverse market refinance fee, refinancing your mortgage can be costly. There may be many fees associated with refinancing. Discover Home Loans either does not charge these fees or psys them for you and has zero charges at closing.

Adverse market fee:

An added fee to help offset the risk of defaults and foreclosures because of COVID-19 and the economic crisis.

Cost with most lenders: 0.5% of the loan amount1

Cost with Discover: $0

Application fee:

Whether your loan is accepted or not, you may still have to pay this fee, which covers the cost of processing the request and running a credit check.

Cost with most lenders: $75-$3001

Cost with Discover: $0

Loan origination fee:

A charge, coming from the lender or broker, to analyze and prepare your mortgage loan.

Cost with most lenders: 0%-1.5% of the principal loan amount.1

Cost with Discover: $0

Points:  

One-point typically equals 1% of your mortgage loan amount. Loan-discount points are a single charge to reduce the interest rate of your loan. In other situations, some lenders, and brokers charge points to earn money on the loan. You can negotiate with your lender to determine the number of points you will have to pay. The IRS has information on deducting home mortgage points.

Cost with most lenders: 0%-3% of the principal loan amount1

Cost with Discover: Discover has zero charges at closing.

Appraisal fee:

This covers the cost of an appraisal, which is used to determine whether the value of the property is at least as much as the loan. Some lenders and brokers wrap this into the application fee.

Cost with most lenders: $300-$7001

Cost with Discover: $0 (paid by Discover)

Attorney review/closing fee:

The charge that typically covers the cost of the lawyer or company that conducts the closing.

Cost with most lenders: $500-$1,0001

Cost with Discover: Zero charges at closing (paid by Discover)

PMI:

Private mortgage insurance (PMI) is a type of insurance on conventional home loans. This is designed to protect the lender in the event that you stop making payments on your loan.

Cost with most lenders: 0.5%-1.5%1

Cost with Discover: $0

Title search & insurance:

Lenders need to search the property records to verify that you are the rightful owner and check for liens. This fee covers that search. Title insurance protects the lender if there are errors in the title search results and covers their investment in your mortgage.

Cost with most lenders: $700-$9001

Cost with Discover: Title fees are considered a closing cost (paid by Discover). Discover has zero charges at closing.

Survey fee: 

Surveys are conducted to confirm the location of a property and any improvements on the land. If a survey was recently done on your property, you may be able to avoid this charge. 

Cost with most lenders: $150-$4001

Cost with Discover: Survey fees are considered a closing cost (paid by Discover). Discover has zero charges at closing.

Prepayment penalty:

A fee charged by some lenders if you pay off your existing mortgage early.

Cost with most lenders: 1-6 months’ interest payments1

Cost with Discover: $0

Note: While Discover does not charge a prepayment penalty, there is an Early Loan Payoff Cost. This is a reimbursement of certain third-party fees that are otherwise covered on behalf of the borrower unless the borrower(s) pay off their loan within 36 months. This will be no more than $500 and does not apply to residents in Connecticut, Minnesota, North Carolina, New York, Oklahoma, or Texas.

Why is the new fee on mortgage refinances necessary?

Fannie Mae and Freddie Mac plan to enact the new adverse market refinance fee to offset risk management and loss forecasting brought on by economic and market uncertainty from the COVID-19 pandemic.

The Mortgage Bankers Association, along with nearly 30 other housing, financial services, and public interest groups denounced the fee in a statement:

Refinance volume has increased over the last several months as homeowners have tried to take advantage of low mortgage rates. But the new fee could discourage homeowners from refinancing.

How other lenders are applying the adverse market fee

Lenders may decide to implement the 0.5% adverse market refinance fee to loans in several ways, including:

  • Increasing the interest rate, or
  • Passing the charge off as an origination fee, which the borrower would pay at closing

Refinancing with Discover Home Loans avoids fees

With Discover Home Loans, homeowners won’t have to pay the new adverse market fee on mortgage refinance.

  • Discover Home Loans does not sell its home loans to Fannie Mae or Freddie Mac. Instead, Discover holds refinanced loans within their portfolio and services them internally, avoiding the adverse market refinance fee altogether.
  • Discover doesn’t have to pass the fee back to the borrower by raising their interest rate or charging an origination fee, as other lenders may do.

The Discover Home Loan mortgage refinance process is fast and easy. Homeowners can apply online or over the phone in minutes. Discover also offers virtual closings in states where they are allowed by law, which have become increasingly popular with social distancing rules in place amid the COVID-19 pandemic.

Discover does not charge any refinance fees at closing:

  • Zero application fees
  • Zero origination fees
  • Zero appraisal fees
  • Zero adverse market refinance fee

Discover’s refinancing options

The new adverse market fee being imposed by Fannie Mae and Freddie Mac may affect many homeowners looking to refinance their mortgages. By refinancing with Discover Home Loans, homeowners can get the transparency of zero application, origination, and appraisal fees while avoiding the potential aggravation of the additional adverse market fee.

Discover offers home equity loans and mortgage refinance loans with low, fixed interest rates and zero charges due at closing. Home equity loans also may provide a tax deduction for interest paid for certain home improvements. Consult your tax advisor to see how if your project qualifies. To take advantage of current refinancing rates and avoid a potential adverse market fee, use our Home Equity Loan calculator or speak directly with a personal banker today.

$0 Application Fees.
$0 Origination Fees.
$0 Cash Required at Closing.

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1 Source: https://www.federalreserve.gov/pubs/refinancings/#cost



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