Beware of mortgage 'gotcha' charges

By JEFF LAZERSON / CONTRIBUTING COLUMNIST

Certain loan products have predatory charges baked into your loan’s pricing. There’s no reason for you to put up with this nonsense (in most cases) by being forced to overpay.

Either the shake down is in the form of higher upfront points, or along the way, higher monthly mortgage rates that translate into higher monthly house payments.

There are many. I’m going to spotlight what I think are the two worst Fannie Mae pricing jackpots and how you can work around these stick-it-to-the-consumer premiums that Fan bravely labels as risk-based pricing adjustments or loan level pricing adjustments.

The worst abuse is when you add (or retain) a HELOC (home equity line of credit) or second mortgage.

If you add any type of secondary financing to a home loan or even subordinate an existing second lien you will be charged at least a 0.375 point add – even if your combined equity is 60 percent or more. It can add as much as 2.125 points to your cost, assuming you have little equity and low credit scores.

For example, on a $400,000 first mortgage, your pricing premium ranges from $1,500 to $8,500. Or, it can add as much as 0.375 percent to your mortgage interest rate.

Second liens are not riskier for first-lien lenders. In fact, they add safety because if you default on your first mortgage, the best way the second trust deed holder can be made whole is if it makes your first mortgage payment until it forecloses on you.

Your workaround is to apply for the second lien at least one day after your new first trust deed records. That way you can’t be charged for the additional lien. If you have to subordinate an existing second, you are stuck with the subordination charge.

Consider cash-out refinancing charges. Look no further than the Federal Housing Administration or the Veterans Administration. They charge nothing additional for cash-out refinancing.

Yet, Fannie premiums are anywhere from at least 0.375 of a point to 3.125 points on loan amounts up to $417,000. For loan balances of $417,001 to $625,500, as much as another 1.5 percent in points can be lopped on to these loans, with higher base mortgage rates to boot.

There goes your kids’college savings.

The work around is to do a no-cost cash-out refinance. Then, six months later do a no-cash out refinance. Compare FHA and conventional pricing for the first, no-cost, cash-out pricing. Conventional will likely be the way to go on the second refinance in six months since FHA charges a mandatory monthly mortgage insurance fee.

Your loan officer or lender can get stuck with a large bill if you pay off a loan too early. You typically have to wait 180 days after funding the first loan to keep your loan officer out of the poor house.

In all instances, ask your loan officer if there is a work around for you to avoid getting stuck with these gotcha charges. And, be sure you are saving at least $100 per month on the new no-cost refinance.

If you have questions or comments, please contact Jeff Lazerson by clicking here.