New Hidden Fees in Mortgages | Crested Butte
While only 30% of the transactions in the Crested Butte CO Real Estate market have a lender involved – with such low mortgage rates it may be smart to be aware. A large government insurer, which could be in need of a bailout, has plans to generate $10 billion by locking borrowers in the middle class into high fees for years, even decades.
Consumers who don’t have much cash for a down payment when purchasing a home usually have to pay a higher interest rate than buyers with a larger down payment for the first few years of a mortgage. Now, due to a change in a government program, these buyers will be required to have to pay the high mortgage rate for as long as 30 years.
Lenders typically require that borrowers take out mortgage insurance when they don’t pay 20% of the home’s purchase price in a down payment, or have 20% equity when refinancing a mortgage. Beginning next month, one of the U.S.’s major insurers will start mandating that borrowers who take out their insurance pay premiums as long as the mortgage is in their possession. For the past 10 years, the lender has permitted borrowers to cancel their policy when their loan balance falls to 78% of the home’s value, which eliminates the necessity for mortgage insurance.
At the current rates, with a 5% payment, this process would take 7 years.
The change of a component of a broader financial plan to boost the finances of the lender, which some would say is definitely in a financial hole. Last month, the lender raised its premium for insurance. Now, a homeowner getting a loan with FHA mortgage insurance will, on average, pay an interest rate of 4.7% for a 30-year fixed rate loan, as opposed to 3.4% for borrowers putting down 20%.
However, the largest boost to the lender’s finances is projected to come from making the insurance premium a permanent fixture. Officials for the lender estimate that the change would have locked $10 million in additional fees for the lending company on mortgage that it insured in the past three years alone. That’s also the additional amount that borrowers will owe over the lifetime of their home loans.
The issue is that the major lender is going to be forcing those who borrow from the company to pay for the insurance long after it’s needed. Private mortgage insurers are legally required to cancel a borrower’s policy once they have come to the 20% home ownership threshold. However, this major lender is exempt from this law. It’s not even completely clear that the lender actually needs the money.
Recently, the Obama administration estimated that the lender may need around $943 million over the next fiscal year to cover expenses. This does not include any gains the lender may have acquired from legal settlements. Most importantly, all of the $943 million is designated for expected losses in the lender’s reverse mortgage program, which isn’t by the premium payments extension.
Follow