Real Estate

Mortgage Fees Are On The Way Up

Lenders want a plumper cushion against the risk of defaults.

By Anne Kates Smith, Senior Associate Editor

From Kiplinger's Personal Finance magazine, April 2009

Mortgages purchased from banks and brokers by Fannie Mae and Freddie Mac are getting a little more expensive -- again. Starting in April, the latest in a series of fee adjustments -- aimed at accounting for default risks -- will begin to affect a wide swath of home buyers and mortgage refinancers.

Fannie Mae and Freddie Mac purchase loans of up to $417,000 -- and up to $625,000 in pricey markets. But gone are some discounts that borrowers once enjoyed, such as the quarter-point break for those who have credit scores of 720 or above and have less than 15% equity in their homes (such loans are considered safer because borrowers typically pay insurance). For the first time, anyone buying or refinancing a condo with less than 25% down will pay 0.75% of the loan amount, unless the term is 15 years or less.

Borrowers with less than 30% equity will pay more if their credit score is below 700; borrowers with less than 15% equity will pay more even if their credit is flawless.

"Not so long ago, a credit score of 680 was considered great -- you got all the good deals," says Mike Anderson, president of Essential Mortgage, in New Orleans. You can also expect a bigger hit if you've got a home-equity loan, or if you take cash out when you refinance.

Under Fannie Mae's new rubric, someone with a $250,000, 30-year loan, with 15% equity and a credit score of 699, will pay $2,500 more for a cash-out refinance than they would have before April. "Rates are so low that people want to lower their payment by $200 or $300," says Anderson. "But all these fees make it cost-prohibitive."

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