Mortgage Fees to Rise, Fannie Mae says

(February 11th, 2008)

Mortgage fees will be getting more expensive for certain groups of borrowers says Freddie Mac. You know how if you get in to an accident, your auto insurance rates shoot up? Something similar is about to happen to mortgage rates. A fee of $250 will be tacked on to every $100,000 borrowed. Thus if you borrow $300,000 you will be hit with a mortgage fee of $750. These fees could actually be higher if your credit score is lower than 680 and if you are borrowing more than 70% of the home's principal value (meaning less than 30% down payment).

Any home loan that is insured by Fannie Mae or Freddie Mac will have these fees. Both companies say the risk of guaranteeing mortgage loans for people has shot up really high. Thousands of sub prime borrowers are defaulting on loans that were guaranteed by the two companies and this has to change. These fees will also compensate the companies for being in the era of declining housing prices, more foreclosures & defaults as well as real estate investors losing money.

This new system of fees is known as "risk based mortgage pricing." Under risk based mortgage pricing, the riskier the loan, the higher the fees involved. People who take out 40 year mortgages, or investors buying investment properties will also pay the higher fees. These fees come into effect February 2008 and any loans issued on/after this date. Loans that were taken out prior to February 2008 will also face increased costs in the form of higher interest rates or as closing costs.

Credit Scores & Risk Based Mortgage Pricing

The timing of these new fees is very bad. It comes at a time when credit scores of consumers take a dive during and after the holiday shopping season (Christmas and new years shopping season). This is a time when consumers run up balances on their credit cards. Due to maxed out credit limits, their credit scores drop immensely.

For consumers who are thinking of refinancing their mortgage loans in the new year, they will be shocked; especially those who ran up their credit cards during their holiday shopping season. As stated earlier, the increased balances on their charge cards will drop their credit scores to below 680, thus forcing them to pay the extra quarter point fees. Many consumers might not qualify for any type of mortgage loan, and others will realize refinancing their mortgages does not make sense due to increased fees.

2MortgageLoanCalculator.com suggests to such people to pay off their holiday credit card debts by as much as they can, before refinancing their mortgages. We also suggest checking your credit score and whether it is above 680 points or not. If not, you have to wait before it surpasses that score before you should think of refinancing your mortgage.

Other Charges

Borrowers who take out jumbo loans (loan amounts of $417,000+) or piggyback loans will face extra charges on top of the quarter point fee ($250 per every $100,000 borrowed). Borrowers with credit score of less than 620 points who put down less than 30% down payment on their homes will pay a fee of 2% of of the loan amount; maximum of $2000 per every $100,000 borrowed. Borrowers with credit score of 630 - 650 points will pay a slightly lesser fee of 1.25% of the loan amount.

Also, borrowers who have interest-only loans with credit scores of less than 720 will pay a half-point fee ($500 per every $100,000 borrowed). Borrowers who are not willing to pay the 1 point fee ($1000 per every $100,000 borrowed) in cash upfront may be faced with an increase in their interest rates. A 1 point fee translates into about 0.25%, meaning if your interest rate was currently at 6.25%, it would be increased to 6.5%

What interest rate are you paying, and on what type of mortgage? Are you having to face these increased fees? Feel free to share your thoughts & experiences by posting a comment below.