Happy New Year - mortgage fees are going up.
As part of the deal to extend a temporary reduction in payroll
taxes, Congress last month approved a permanent increase in the
fees borrowers pay on mortgages backed by Fannie Mae, Freddie Mac
and the FHA.
The increase is an annual charge of at least 10 basis points -
equal to one-tenth of one percent of the loan amount. That's equal
to an additional $300 a year on a $300,000 mortgage, or an
additional $25 a month. The increase is proportional, so a borrower
with a $150,000 mortgage would pay another $150 a year, one with a
$400,000 loan would pay an additional $400, etc.
The increase is on top of the 26 basis points (0.26 percent)
guarantee fee already charged on Fannie Mae and Freddie Mac
mortgages, and in addition to the annual mortgage insurance premium
charged by the FHA, which varies from 25 to 115 basis points
(0.25-1.15 percent) depending on the size of your down payment and
whether you have a 30-year or 15-year mortgage.
New mortgage fees to crop up in a few weeks
Technically, the new fees don't kick in until the first of
April, when they'll start being charged on mortgages closed as of
that date. However, they will likely begin to show up on new
mortgage applications starting around the end of January or early
February, to guard against potential delays in loan approvals.
The increase is intended to help pay for the extension of the
payroll tax cut, which is expected to cost some $33 billion in
reduced revenues. However, the tax cut extension is for only two
months, through the end of February, while the Congressional Budget
Office estimates that the fee increase on mortgages will take 10
years to generate $35.7 billion - and it's permanent.
Extension of one-year cut in Social Security tax
Congress originally approved a one-year reduction in the payroll
tax, which funds Social Security, to 4.2 percent from the 6.2
percent regularly assessed on most incomes. Intended as an economic
stimulus, the cut was originally scheduled to expire at the end of
2011, but most members of Congress wanted to extend it for at least
another year with the economy still struggling.
The two-month extension was passed in December as a compromise
after Republicans sought to include budget cuts that Democrats
opposed. The two sides will try to work out a full-year extension
in the weeks ahead, as neither wishes to get blamed for allowing a
broad-based tax cut to expire during an election year.
The two-month tax cut will save someone earning $50,000 about
$167, or $1,000 if Congress goes ahead and continues it through the
end of 2012 as expected.