Hidden Mortgage Fees

photo by Tania Liu

TheStreet.com quoted me in Hidden Fees Cost Consumers Billions: Which Ones Are the Worst? It opens,

Consumers are notoriously combative over high product and sales fees, and who can blame them?

Fees for common items like mortgages, credit cards, bank accounts and online deliverables, among many others, can really add up, and do hit consumers hard in the pocketbook.

That goes double for so-called “hidden fees” – shadowy charges on goods and services that buyers usually don’t know about.

A new study by the Washington, D.C.-based National Economic Council shows that Americans lose “billions of dollars” from such hidden fees. Another study of communications firms like AT&T, Verizon and Comcast by the Consumer Federation of America pegs hidden fee costs at $60 billion annually.

Few hidden fees are favored by consumer advocates, but some are worse than others.

“My household bills look very much like those of a typical consumer – two cell phones, cable, broadband and landline telephone,” says Dr. Mark Cooper, the CFA’s Director of Research and author of the communications industry report. “Hidden fees – excluding the price of the service, taxes, and governmental fees – added about 25% to my total bill.”

The CFA’s “Hidden Fees” report documents a pervasive pattern of abuse across many industries, adds Cooper, “but hidden fees on communications services are particularly troubling because these digital services have become absolute necessities in the American household.”
Besides cable and internet service costs, which routinely stand atop the list of industry offenders, what other hidden fees continue to haunt American consumers?

Here’s a quick list:

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Mortgage fees – Outside of the cable/telecom arena, the mortgage sector may well boast the most hidden fees. “When applying for a mortgage, a borrower can be hit with all kinds of obscure fees like processing fees, notary fees, courier fees, even fees for sending emails,” says David Reiss, a professor of law at Brooklyn Law School. ” Before paying the mortgage application fee, the borrower should ask whether any of the fees are waivable. If they are charged by the lender, as opposed to a third party like a government agency, they may very well be waivable.”

Consumers should be on the lookout for hidden fees, across the board. Some solid due diligence can keep a few more bucks in your pocket and strike a blow against companies with fee programs that operate in the shadows, time and time again.

But as of right now, those hidden fees are paying off for companies, and at U.S. consumers’ expense.

Low, Low, Low Mortgage Rates

photo by Martin Abegglen

TheStreet.com quoted me in Top 5 Lowest 15-Year Mortgage Rates. It opens,

U.S. mortgage rates have continued to decline in the aftermath of the Brexit vote, low Treasury rates and the stagnant economy, giving potential homeowners an opportunity to save money because of the dip.

The current market conditions give homeowners in the U.S. an opportunity to take advantage of the continuation of low mortgage rates since the Federal Reserve has not increased interest rates.

But, how do you snag the absolute lowest rates?

How to Get a Low Rate

Low mortgage rates can play a large factor in homeowners’ ability to save tens of thousands of dollars in interest. Even a 1% difference in the mortgage rate can save a homeowner $40,000 over 30 years for a mortgage valued at $200,000. Having a top notch credit score plays a critical factor in determining what interest rate lenders will offer consumers, but other issues such as the amount of your down payment also impact it.

A high credit score is the key to ensuring that borrowers receive a low mortgage rate. Here’s a quick rundown of what the numbers mean – a score of anything below 620 ranks as poor, 620 to 699 is fair, 700 to 749 is good and anything over 750 is excellent. Think carefully before canceling a credit card with a long, positive history, but decrease your debt. One of the biggest factors which impact your credit score is your credit utilization rate.

Many potential homeowners focus only on the interest rate or the monthly payment. The APR or annual percentage rate gives you a better idea of the true cost of borrowing money, which includes all the fees and points for the loan.

The origination fee or points is charged by a lender to process a loan. This fee shows up on your good faith estimate (GFE) as one item called the origination charge. However, the origination fee can be made up of a few different fees such as: processing fees, underwriting fees and an origination charge.

Homeowners who are able to afford a 20% down payment do not have to pay private mortgage insurance (PMI), which costs another 0.5% to 1.0% and can tack on more money each month. Having at least 20% in equity shows lenders that there is a lower chance of the individual defaulting on the loan.

Choosing Between 15-year and 30-year Mortgages

Obtaining a 15-year fixed rate mortgage instead of a traditional 30-year mortgage means homeowners can save thousands of dollars in interest. One drawback of a 15-year mortgage is that consumers will be locked into higher monthly compared to a traditional 30-year mortgage or a 5-year or 7-year adjustable rate mortgage, “which could put the squeeze on homeowners when times are tight,” said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization.

Many households would not benefit from a 15-year mortgage because it “does more to limit their financial flexibility than to enhance it,” said Greg McBride, chief financial analyst of Bankrate, a North Palm Beach, Fla.-based financial content company.

“Locking into higher monthly payments makes the household budget tighter and for what?,” he said “So you can pay down a low, fixed rate loan? On an after tax, after-inflation basis you’re essentially borrowing for free.”

McBride suggests that this strategy does not bode well for homeowners, especially if they are not paying down their higher interest rate debts and maximizing their tax-advantaged retirement savings options such as IRAs and 401(k)s.

“Even then, you might be better off investing your money elsewhere than tying up more of your wealth in the most illiquid asset you have – your home,” he said. “Just 28% of American households have a sufficient emergency savings cushion, so why the hurry to pay off a low, fixed rate, tax deductible debt. Money in the bank will pay the bills, home equity will not.”

The current economic situation has pushed down rates with 15-year mortgages becoming “relatively more attractive” than even 5-year adjustable rate mortgages (ARMs) over the last year, said David Reiss, a law professor at the Brooklyn Law School in New York. Last week Freddie Mac announced the average 15-year mortgage rate was 2.74% and the average for the 5-year ARM was 2.75%.

“These rates are virtually the same,” he said. “A year ago, the 15-year was relatively more expensive than the 5-year by about 0.16%. If you can swing the higher principal payments for the 15-year mortgage you will be getting about as good an interest rate as you could hope for.”