Rising mortgage fees menace super-low rates
Mortgage rates remained at record lows this week, thanks to the Fed, the crawling economy and the euro crisis. But a recent move by Congress will surprise some buyers and refinancers as they are hit with higher mortgage fees in coming days.
30 year fixed rate mortgage – 3 month trend
The benchmark 30-year fixed-rate mortgage remained unchanged this week at 4.18 percent, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.33 discount and origination points. One year ago, the mortgage index was 4.94 percent; four weeks ago, it was 4.19 percent. At 4.18 percent, this week's rate ties last week's rate for the lowest the 30-year fixed has reached in the 26 years of Bankrate's survey.
The benchmark 15-year fixed-rate mortgage fell 2 basis points to 3.38 percent. A basis point is one-hundredth of 1 percentage point. The benchmark 5/1 adjustable-rate mortgage fell 15 basis points to 3.04 percent. Both of those are record-low rates in the history of Bankrate's weekly survey.
Weekly national mortgage survey
Results of Bankrate.com's Jan. 11, 2012, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
Rates stay low, but not loan fees
Mortgage rates are expected to remain low for now, but borrowers will face higher loan fees, which will translate into slightly higher interest rates or points for borrowers. That's because the guarantee fee on loans that can be sold to Fannie Mae and Freddie Mac is set to increase by a minimum of 10 basis points.
The hike doesn't take effect until April 1, but lenders have already started to pass the extra cost on to borrowers.
"It can take a bank up to a month to package and deliver a loan," after the loan closes, says Dan Green, a loan officer for Waterstone Mortgage in Cincinnati.
Lenders want to make sure they are not stuck with the bill if there are delays selling mortgages to Fannie or Freddie that push the transfers past April 1.
"So if you lock for 45 days, they are going to add on the (increase) now," Green says.
Borrowers who want to lock a rate for 30 days may still have a couple of weeks to grab a rate without the extra cost, says John Walsh, president of Total Mortgage in Milford, Conn.
How much of an increase?
Green and other mortgage professionals say some lenders have or plan to increase the price of their loans anywhere from 20 to 80 basis points, which translates to about 0.125 percent to 0.25 percent in interest.
While higher lending costs are never positive to borrowers, at least the increase comes at a "decent time when rates are already really low," says David Kuiper, a mortgage planner at First Place Bank in Holland, Mich.
Impact of higher fees
The slightly higher costs should not have a major impact on the demand for mortgage loans because rates will remain attractive, Walsh says.
"Still, I don't like anything that takes steam out of the purchase market," he says. "This country desperately needs the housing market to get back on its feet. That's why the Fed is trying to keep rates artificially low."
The Fed says it will keep the key federal funds rate rate near zero until mid-2013 and continues to reinvest in long-term securities to help keep rates low.
But Congress has pushed rates in the opposite direction. The Fannie and Freddie hikes resulted from the extension of the payroll tax cut, passed in late December. The tax cut, which allows workers to take home a larger share of their pay, was extended for another two months. Congress mandated Fannie and Freddie to raise their fees to make up for the nearly $36 billion cost of the extension.
The Fannie and Freddie hikes will likely have a greater impact on refinancers than purchasers, Green says.
"For households that wanted to refinance, that 0.25 percent represents a very big deal over the long run," he says.
FHA loans also will get more expensive
The act also requires the Federal Housing Administration to charge higher fees by increasing the premiums on mortgage insurance for FHA loans. Although the FHA has not announced when the increase will take place, mortgage experts say they expect it to happen by April.
"I think it will happen sooner than later," Green says.