It used to be that the rates for buying or refinancing a second home were more or less the same as those for buying or refinancing a primary home. Those days are gone now, though. The Federal Housing Finance Agency is going to raise fees/rates as of April 1, 2022 on some home loans, specifically second home mortgages.

On average, these new changes will increase mortgage rates by about 1 percentage point for second homes. In other words, if the rate you’d get for a loan on your primary residence was 3.5%, your rate on a second home would be around 4.5%.

That might sound like a small change, but it can add up to a difference of thousands or even tens of thousands of dollars over time.

Which Loans Are Affected By The New Fees?

The changes made by the FHFA affect loans for second properties and conventional high-balance loans. All the second home mortgages that get sold to Fannie Mae and Freddie Mac will go through the increase in fees. That means the higher fees will affect almost all fixed-rate loans for $647,000 or less.

To be clear, a second home is any property that isn’t your primary residence but one that you do live in some of the time.

Why Is The FHFA Raising Fees On Second Homes?

According to FHFA’s Acting Director Sandra L. Thompson, the fee adjustments are meant to aid “equitable and sustainable access to homeownership” as well as strengthen Fannie and Freddie’s “regulatory capital position over time.”

In theory, the new fees will help first-time homebuyers and buyers in low- to moderate-income brackets gain access to home loans as they will be exempt from these fees.

How Can You Avoid The Higher Rates?

If you were planning on taking out a loan for a second home, you’re probably now wondering whether it’s possible to avoid these higher rates. It is indeed possible. You’ll just need to take advantage of portfolio loans.

A portfolio loan is one that a bank holds onto rather than selling it off to Fannie Mae or Freddie Mac. For reference, a 4.5% rate with Fannie Mae or Freddie Mac would generally lead to a comparable portfolio rate of 2.75% to 3.375%.

The difference in payments between those two rates is huge. For a portfolio loan of 3% on a $400,000 loan, the monthly P&I payment would be about $1,690. At 4.5%, it would be about $2,020. That’s a $330 per month difference.

Making The Best Decisions

Buying or refinancing a second home is a big decision that requires careful consideration of all the relevant details like this fee change. You don’t have to do it alone, though. That’s what a certified mortgage planner is for.

If you or someone you know is thinking of buying or refinancing a second home, reach out to me via my website, or call 847-214-2404 and we can discuss program and rate options that make the most sense for you. For more tips and latest updates, check us out on Facebook, Twitter, LinkedIn or Pinterest!

Ed Currie