Lower Taxes, But Higher Mortgage Fees


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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.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Banking and Loans

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