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Mortgage Rates Astonishingly Low, But Refinance Fees Higher, Too

[Feb 13, 2010.]


The average mortgage rate is around 5 percent. The average. That is quite astounding, and certainly it is great news for anyone looking to refinance.

However, that 5 percent tantalizing rate is not the whole story of what it takes to refinance today. Instead, the reality of the mortgage refinance market is much more complex than the low rate headline suggests.

Higher Refinance Costs Even for Excellent Credit

One major refinancing challenge that appears to be somewhat underreported is the fact that mortgage refinance costs are higher than they've been in a long while, even as mortgage rates are very low.

As this article about refinance costs shows, lenders are looking to see a 740 FICO score in order to grant that 5 percent rate. Freddie Mac and Fannie Mae are demanding above 740 for their new guidelines which take effect in April, and mortgage originating companies are following this lead.

It used to be that any FICO score above 720 was good enough to get the best rate.

Points Nearly Double from Last Year's Number

According to Freddie Mac reports, the average amount of points paid to get a mortgage in January of 2009 was 0.4 points. In January 2010, the average points amount was 0.7--nearly double.

Points are basically prepaid interest paid to the lender or origination company for processing the mortgage. It's harder and harder to find a true "no points" refinance, where once upon a time that was the easiest deal in the book for a homeowner with equity in the property.

On the upside, analysts point out that borrowers who pay points today get more bang for their buck in terms of lowering the mortgage rate than in prior time periods.

Miscellaneous Fees Multiplying

Anyone who has ever gotten a mortgage and reviewed the paperwork has felt the need to admire the creativity of these mortgage companies when it comes time to invent names for different fees related to the refinancing process.

From document transfer fee to mortgage insurance to notary fees, reading over the HUD-1 statement can be a taxing tastk in and of itself. This has continued to be the case and even escalated.

One new fee that is gaining popularity with lenders, if not with borrowers, is called the "rate lock fee." This is a fee charged to the borrower for the privilege of locking in a particular mortgage rate before the loan actually closes.

Another refinancing fee to look out for is the appraisal fee, which usually costs about $400.

With costs higher, it's more important than ever to work with a reputable mortgage loan officer who understands the concept of fudiciary duty, i.e. treating your money as if it were his or her own.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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