Even though Federal policy encourages homeowners to refinance their existing mortgages at today's record low rates in order to stimulate the economy and get personal balance sheets in order, many who might like to do so find themselves blocked by a hidden factor: extra fees tacked on at settlement by the government-sponsored mortgage guarantors, Fannie Mae and Freddie Mac.
In its weekly mortgage rate survey, Bankrate.com notes that, depending on the type of loan and borrower's credit rating, the extra fees -- called "loan level price adjustments" by Fannie and "postsettlement delivery fees" by Freddie -- can add 2 percent or more to the total cost of the loan. If not paid upfront as points, these fees can raise the effective interest rate by one-quarter of a percent - or even more.
Only borrowers with sterling credit can escape refinancing fees completely
"The only way you'll never have any adjustment is if you're doing a rate-and-term refi and your credit score is over 740," Jim Sahnger, a mortgage consultant for Palm Beach Financial Network in Stuart, Fla ., told Bankrate.
In general, borrowers with credit scores below 720 can expect higher interest rates to begin with - at least one-eighth of a percentage point higher, regardless of the loan. Other factors that can affect the loan's total cost include loan-to-value ratio (the higher the ratio, the higher the interest rate and cost), type of property (homeowners can usually expect better terms than condo owners), and type of loan (cash-out refinancings will cost more than rate-and-term loans).
Still, it is somewhat ironic that the policies of two government-sponsored agencies serve to undercut a goal the government promotes.
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