Mortgage fees are on the rise
And chances are that more of them are on the way, some say
CHICAGO
(MarketWatch) — Higher fees are sneaking into the overall cost of most
mortgages. But given ultralow interest rates these days, it’s likely few
borrowers will notice.
Mortgage rates
are clinging near record lows, with the 30-year fixed-rate mortgage averaging
3.95% for the week ended Feb. 23, according to Freddie Mac’s weekly survey of
rates for conventional mortgages.
Still,
consumers should pay attention to any fee increases because they could be a
sign of what’s to come: increasingly higher costs to get a government-backed
mortgage, whether it’s a conforming loan sold to government-sponsored entities
Freddie Mac and Fannie Mae or a loan backed by the Federal Housing
Administration, said Guy D. Cecala, publisher of Inside Mortgage Finance, a
trade magazine for the residential mortgage business.
“The message
there for consumers is even though none of this stuff is going to have a big
impact right away, the cost of getting government [backed] mortgages is going
to go up,” Cecala said.
Paying for tax cut
The guarantee
fee that lenders must pay to Fannie Mae and Freddie Mac for securitizing loans
will rise by one-tenth of a percentage point on April 1, a cost that will get
passed on to borrowers through interest rates that are about an eighth of a
percentage point higher, said Bob Walters, chief economist for online lender
Quicken Loans.
That fee
increase was part of the payroll-tax cut deal reached in December.
For the most
part, lenders already have factored those costs into the interest rates they’re
quoting now, mainly because it will take a while before they sell the loans to
Freddie and Fannie, said Walters. Lenders assume it will take 45 to 60 days to
close a loan and another 15 to 30 days before they deliver the loan to Freddie
or Fannie, he said.
While this fee
increase is slight, some think it could signal more fees to come. Freddie Mac
and Fannie Mae need to be profitable, said Karen Mayfield, national mortgage
sales manager at Bank of the West in San Francisco. “Let’s face it, the higher
fees give them more revenue.”
Annual
mortgage-insurance premiums for FHA-backed loans are also set to rise by
one-tenth of a percentage point on April 1, Mayfield said. That’s about $200
more a year for mortgage insurance on a $200,000 FHA-backed mortgage, she estimates.
Premiums will go up another quarter point for mortgages greater than $625,500,
affecting borrowers in high-cost markets like California.
“The government
is taking a look at what they think the cost of insurance should be,” said
Walters, “and the general consensus is that it should be higher.”
Some borrowers
will face another cost when they go to file their 2012 taxes in 2013. That’s
because the 2011 tax year is the last in which borrowers can deduct the
mortgage insurance they paid either through a private insurance company or
through the FHA.
Watch for junk fees
Despite the
threat of rising costs, the current low-rate environment is causing borrowers
to feel little urgency when it comes to locking in a low rate for a home
purchase or refinancing.
“For the last
two years, everyone has been predicting at the beginning of the year that
interest rates would rise and they’ve done the opposite — they’ve fallen,”
Cecala said. “No [borrower] is expecting that they are going to lose their
window of opportunity for the foreseeable future.”
But if you’re
in the market for a mortgage, be wary of what Cecala calls “junk fees.”
Over the past
three years, mortgage lenders have been “making more money on the
loan-origination side than they have in the past,” Cecala said. “They find
opportunities for building in fees,” though lenders might argue about what is
and isn’t a junk fee.
Look for costs
such as origination fees, processing fees, document-preparation fees and any
other fee that the lender is charging — as opposed to third-party fees,
including those for title insurance and appraisals, which are set costs that
the lender does not control.
Many of these
“junk” fees are negotiable.
Also, keep in
mind that it takes longer these days to get a mortgage approved, so consider
getting an interest rate locked in for as long as possible, Cecala said. Any
agreement pertaining to lock extensions should be in writing.
Sometimes,
lenders will say they’ll extend the interest-rate lock at no cost if the loan
doesn’t close on time — getting that promise in writing could save you some
money, Cecala said.
Amy Hoak is a MarketWatch reporter based in Chicago.
