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Will Mortgage Rates Increase with Fannie Mae Guarantee Fee Increase?

By on January 12, 2013 in Mortgage

Will Mortgage Rates Increase with Fannie Mae Guarantee Fee Increase?Both Fannie Mae and Freddie Mac may cause higher mortgage rates for certain borrowers in the near future. The regulatory agency over both mortgage organizations (the Federal Housing Finance Agency) mandated a 10 basis point increase in guarantee fees for loans backed by both Fannie and Freddie.

This isn’t the first increase in fees charged by the Federal mortgage giants, but nonetheless it may result in higher mortgage rates for many borrowers. If you are considering a refinance of your home mortgage it would be wise to try and get it done sooner rather than later.

Why Fannie Mae Guarantee Increase Can Impact Your Mortgage Rate

Fannie Mae and Freddie Mac charge mortgage lenders for what amounts to insurance on those loans. It is called a guarantee fee. This fee increase acts as an increase in costs to the mortgage company which will lower their profits. In turn the mortgage company will pass those increased costs along to borrowers to keep profits at their previous levels.

How much will rates increase to make up for the increase in the guarantee fee? It is difficult to pin down an exact number, but it should be more than 10 basis points (or 0.10%) as the costs get passed down through the mortgage system. Some have estimated increases ranging from 0.125% to 0.375%.

That increase in rate can cost you thousands of dollars over a 30 year mortgage loan. If you buy a $200,000 home with a 20% down payment, your mortgage will be $160,000. On a 30 year mortgage a today’s rates of about 3.25% your payment would be $696.33 and you would pay $90,678 in interest over the life of the loan.

A simple increase of 0.25% to 3.5% would increase your payment to $718.47 and total interest to $98,650. The difference is $7,972, all off just a tiny fractional increase in the interest rate of your mortgage.

The Time to Refinance is Now

For months now the mortgage market has seen drops in interest rates. Rates have never been lower and the time to refinance is now before rates increase due to any government intervention. Waiting to refinance is much more likely to result in a higher interest rate than a lower one because rates are already so low. And with new fees kicking in from Fannie Mae and Freddie Mac, the likelihood of a higher rate even with no other interest rate changes has increased.

Get a Home Mortgage Refinance Quote

The beauty of refinancing your home is it really isn’t that difficult to do. Mortgage brokers and loan officers at banks and credit unions would love to talk to you to refinance your loan. If you purchased your home within the last six months you may not be able to refinance, but other than that as long as you are below 80% loan-to-value you should be able to get a refinance easily.

Getting a refinancing quote means you need the following information:

  • The balance of your mortgage
  • Your current interest rate
  • Your employment information including W2s and pay stubs from the last month
  • Your tax returns
  • Other asset information like checking account, savings account, and retirement account balances

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