Wednesday, February 25, 2009

Mortgage Costs

"Rates are low, but expect to pay more fees for a mortgage today.

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.

According to Freddie Mac's weekly rate survey, the average rate on a 30-year fixed-rate conforming mortgage was 5.05% in January 2009, 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 less to get that rate -- an average 0.4 point was required."

You can get a lower rate by paying points (pre-paid interest), but should do the math to determine if it's worth it. If you are planning to live in the home a long time it is a better decision to pay points up front and to have a lower interest rate in the long-run, but if you won't own the home for a long time, it may not make financial sense.

When comparing lenders make sure you ask about both the interest rate and the closing costs which include lender fees and points to make sure you are making the best decision.

1 comment:

Anonymous said...

The new FHA loan rules can bite pretty hard on the bottom line.