Just because a mortgage rate is low does not mean that the story ends there. According to Amy Bohutinsky, vice president of communications for Zillow.com, mortgage rates are low right now but lending standards are such that even those with excellent credit must adhere to very strict guidelines.
New rules have recently been put into place by Fannie Mae and Freddie Mac whereby borrower’s fees are very high for individuals who have less than perfect credit. Lenders are trying to decrease the risks that they have to take on because of the uncertain market. Regardless of whether your credit is excellent, poor or in between, you can expect to pay more points (or prepaid interest), however the lowest refinance mortgage rates will always go to the persons with the best credit score
Pricing is on a risk-based system. Fees are added to mortgages based on credit scores. If you want to avoid paying exorbitant fees then you would be well advised to have a FICO score of 740, or higher if possible. These new rules take effect in April, according to Dan Green, a loan officer with Mobium Mortgage in Cincinnati, Ohio. However these new rules began being incorporated into rate sheets back in January.
Loan level price adjustments are new fees that are not making too many homeowners in search of low interest rates very happy. Prices vary from one consumer to another. For example you could be paying interest rates that are one or two percent higher than what a family member or friend is paying. Extra charges are likely whether you are buying a house or a condo. So how do you find the best mortgage rates ?
Paying Points
As reported by Freddie Mac’s weekly rate survey, in January 2009 the average rate on a 30 year fixed rate conforming mortgage was 5.05 percent. In order to get this rate your payment would need to be approximately 0.7 points. In 2008, 0.4 points would be required in order to get an interest rate of 5.76 percent.
Be aware that an inverse relationship exists between a rate and points. In other words, the more points that you are expected to pay, the lower will your rate drop. Of the amount paid on the mortgage, there is a one percent point that is then charged as prepaid interest.
Before you begin paying points take the time to consider the ramifications for yourself. Is it worth it to refinance ? Would it be a wiser move to pay no points but to have a higher interest rate on your mortgage? Consider how long you are thinking of living in the residence in question. You also need to consider how much time you will need to pay off the points. The concept of paying points makes more sense the longer you plan to reside in a particular house.
Added Fees
Borrowers can expect to pay higher fees in regards to underwriting and processing, which can range from $300 to $400 or higher. An appraisal fee for a refinance can set you back in the area of $300 or more. To save yourself money, use the same title insurance firm that you use when you first got your mortgage. Mortgage fees will likely cost you approximately three percent of the total of the mortgage loan.
