USDA Refinance Loan – What’s This Monthly Annual Fee Charge?

Date: August 16, 2012

The majority of USDA to USDA Refinance borrowers will notice that their USDA Loan now includes a monthly add on fee, that is a pro-rated portion of the relatively new USDA Annual Fee requirements. Prior to October 2011, USDA Rural Development didn’t charge any monthly fees. Instead all fees were front loaded in the form of a 3.50% Upfront USDA Guaranteed Fee. Effective October 1, 2011 the Upfront Guarantee Fee was reduced to 2.00% and USDA instituted an Annual Fee based on a factorial of .30% of the remaining mortgage balance.

The Annual Fee is paid by the borrower based on a monthly proration of the Annual Fee that is included in the monthly mortgage payment. Often this fee is considered the same as the better known Monthly Mortgage Insurance Premium, MI, or PMI. While technically not a Mortgage Insurance Premium, the distinction is largely ignored and most consumers and lenders now characterize this fee as a Monthly Mortgage Insurance Premium. However, unlike a mortgage premium the USDA Annual Fee is never removed from the loan regardless of the lenders equity position in the property.

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