Borrowers who want to beat higher mortgage fees should get moving. Conventional mortgages are about to get more expensive.
Fannie Mae and Freddie Mac will increase the fee they charge lenders to guarantee loans. The added cost will likely be passed on to borrowers. Fannie and Freddie own or guarantee about half of the outstanding mortgages in the United States. The higher fee does not apply to existing mortgages.
The Federal Housing Finance Agency says guarantee fees will increase by an average of 10 basis points. The hike goes into effect on Nov. 1 for certain loans and Dec. 1 for others. Lenders will likely price their mortgages based on the higher fees sooner than that to allow time for closing.
This is not a fee paid directly by the borrower. Lenders probably will recoup the extra expense by charging borrowers a slightly higher interest rate. In the current low-rate environment, a 10-basis-point increase may not make much of a difference on your monthly payments, but it's significant over the life of the loan.
For example, a borrower taking out a $250,000 30-year mortgage would pay about $15 per month with the hike. Pocket change? It adds up to about $5,400 over 30 years.
Why is the FHFA making mortgages more expensive? The goal is to minimize potential losses for Fannie and Freddie.
"These changes will move Fannie Mae and Freddie Mac pricing closer to the level one might expect to see if mortgage credit risk was borne solely by private capital," says Edward J. DeMarco, acting director of FHFA.
Do you agree with the fee hike?
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