Low Mortgage Rates Will Cost You ...

Mortgage rates are low, but getting a home loan is going to cost you.
New rules by Freddie Mac and Fannie Mae are upping the fees for borrowers with less than perfect credit, those in the mortgage industry say. Other increased costs reflect the uncertainty in the mortgage market as lenders try to reduce their risk and anticipate rates.
"It's an interesting time, in that mortgage rates are historically low," says Amy Bohutinsky, vice president of communications for Zillow.com, a real-estate Web site. "But at the same time, while rates are low, lending standards are still really tight. What that means is that people who qualify for these really good rates … fall under a strict set of guidelines."
Even borrowers with decent credit aren't immune to higher fees and mortgage costs. In general, to get the low rates that make the headlines, borrowers also are often paying more points, or prepaid interest, that bring the mortgage rate down.
Pricing Changes
If you look at where mortgage pricing was a year and a half ago, and where it is now, "there have been a slew of changes, mostly negative from a borrower's perspective," says Rick Allen, vice president of MortgageMarvel.com, a mortgage Web site.
The most recent changes started to show up in lenders' rate sheets this year. New risk-based pricing from Freddie Mac and Fannie Mae adds fees to mortgages based on a borrower's credit score. In order to avoid the extra fees, borrowers need to have a FICO score of 740 or higher, says Dan Green, loan officer with Mobium Mortgage in Cincinnati and author of TheMortgageReports.com.
The new rules take effect in April at Fannie and Freddie, but many lenders have already incorporated them.
The new fees, called loan-level price adjustments, have been an unwelcome surprise for some homeowners interested in taking advantage of low rates. "It has created a different pricing scenario from one consumer to the next," Mr. Allen says. "What you see in the Sunday paper could be perfectly close for one borrower. The guy next door could be 1% higher."
Charges have also gone up for those who extract equity from their home through a cash-out refinance. Condo financing could also cost more.
According to Freddie Mac's weekly rate survey, the average rate on a 30-year fixed-rate conforming mortgage was 5.05% in January, and a payment of an average 0.7 point was required to obtain the rate. A year ago, the average rate was 5.76%, but it took just 0.4 point to get it.
There's an inverse relationship between points and rates; the more points you pay, the lower the rate becomes. A point is 1% of the mortgage amount, charged as prepaid interest.more...