Mortgage fees soar to record heights
Filed under: Real Estate, Ripoffs and Scams
Interest rates are at record lows, which makes this a pretty fantastic time to refinance.
But there's just one problem: An increase in refinance applications has been accompanied by an increase in refinancing fees charged by banks, who are eager to recoup some of the money they lost making bad loans.
Bloomberg reports that "Home refinancing is forecast to hit a two-year high and banks are reaping the profits as mortgage origination fees are the costliest in eight years, according to data compiled by the Federal Housing Finance Agency."
Of course this is a complete ripoff for consumers: Taxpayers are bailing out the banks with one hand, and then paying inflated fees with the other.
But for people who are considering refinancing a mortgage, the key phrase to remember is this: "economies of scale." Refinancing a $400,000 mortgage does not cost much more than refinancing a $100,000 mortgage but assuming similar interest rates, the monthly savings will be vastly different.
What this means is that if you have a relatively small loan balance, there's a very good chance that soaring refinancing fees will make it a bad economic decision to refinance, even though the monthly savings are substantial.
Use a break-even analysis calculator like this one to decide whether it's worth refinancing.
But there's just one problem: An increase in refinance applications has been accompanied by an increase in refinancing fees charged by banks, who are eager to recoup some of the money they lost making bad loans.
Bloomberg reports that "Home refinancing is forecast to hit a two-year high and banks are reaping the profits as mortgage origination fees are the costliest in eight years, according to data compiled by the Federal Housing Finance Agency."
Of course this is a complete ripoff for consumers: Taxpayers are bailing out the banks with one hand, and then paying inflated fees with the other.
But for people who are considering refinancing a mortgage, the key phrase to remember is this: "economies of scale." Refinancing a $400,000 mortgage does not cost much more than refinancing a $100,000 mortgage but assuming similar interest rates, the monthly savings will be vastly different.
What this means is that if you have a relatively small loan balance, there's a very good chance that soaring refinancing fees will make it a bad economic decision to refinance, even though the monthly savings are substantial.
Use a break-even analysis calculator like this one to decide whether it's worth refinancing.
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Reader Comments (Page 1 of 1)
4-03-2009 @ 12:26AM
Joe Allooh said...
With more people going into foreclosures and others are refinancing with higher fees than ever, and others using their equity in their homes to try to get out of debt. Now there is a better way to get debt free in 1/2 to 1/3 the time without refinancing or consolidating debts, it is called the Money Merge Account (MMA),
with little to no change in life style and with the same income. By using the system I'll be debt free 6 years, including my mortgage and the car loan.
You also get a free analysis with no obligation.
http://www.U1stFinancial.net/SaveTime
Reply
4-10-2009 @ 12:13AM
Wes said...
I think Obama has oversimplified the question of re-financing. You see, for many individual situation it is not wise. For example, if your credit situation has decreased, then modifying your terms may be worse for you. So think carefully before you jump on the bandwagon. Make sure you review this checklist:
http://tinyurl.com/refinanceobama
Reply
4-10-2009 @ 12:13AM
Wes said...
You see, for many individual situation it is not wise. For example, if your credit situation has decreased, then modifying your terms may be worse for you. So think carefully before you jump on the bandwagon. Make sure you review this checklist:
http://tinyurl.com/refinanceobama
Reply