For those planning to get a mortgage this year, 2012 will bring good and bad news. Mortgage rates will likely stay low, mortgage experts say. Still, borrowers may have to pay more for mortgages this year.
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That's because, even if mortgage rates do remain near record lows, certain fees associated with getting conventional mortgages are set to rise.
"It's just January, and Congress has already tacked 0.125% onto every conforming mortgage," says Dan Green, a loan officer at Waterstone Mortgage in Cincinnati.
Green is referring to fee increases on mortgages backed by Fannie Mae and Freddie Mac and those guaranteed by the Federal Housing Administration. The increases will be effective in April and will translate into higher points or slightly higher interest rates for borrowers who apply for the most common type of mortgages.
"I expect the change (on the guarantee fee on Fannie and Freddie loans) to add up to 40 basis points in price to a 30-year fixed-rate loan, or $400 in (one-time) cost per $100,000 borrower," he says. "Alternatively, borrowers should be able to finance the 40 basis points by taking a 0.125% increase to their rate."
FHA borrowers also should expect higher borrowing costs this year. Recently approved legislation requires the FHA to charge borrowers 10 basis points more, or one-tenth of 1% of the loan amount, for mortgage insurance. It's not clear when the increase would take place, but many mortgage professionals expect the additional costs by no later than April. HUD says it is "currently evaluating options for implementation of the requirement." The hike would translate into an additional $200 per year, or about $17 per month, for a borrower who takes out a $200,000 FHA mortgage.
But let's get back to the good news: Even with the added costs, if rates do remain low, or drop further -- yes, some experts say they might get even lower in coming months -- they should still be attractive to borrowers seeking to refinance into lower rates and for those looking to buy.
The Mortgage Bankers Association forecasts mortgage rates to hover around 4.1% in the first half of the year and rise slightly, to about 4.2%, in the third quarter of 2012 and to 4.4 in the fourth quarter.
However, it is important for borrowers to remember that rates are unpredictable and influenced by the global economy. One major event can cause rates to spike overnight.
"I advise my clients to be prudent," says Michael Moskowitz, president of Equity Now, a mortgage bank in New York City. "If you are getting a good enough deal now, don't bet on the future."
That said, Moskowitz says he doesn't expect rates to rise until the second quarter of 2013.
"I don't think we've hit bottom in terms of rates because we haven't hit bottom in terms of the economy," he says. "Take a look at what's happening at Europe. Wherever you look, they are just kicking the can down the road."
David Adamo, CEO of Luxury Mortgage in Stamford, Conn., agrees rates will remain low.
"I think before rates start going up, we need to see some significant signs of (economic improvement), and I don't think that's going to happen until the fourth quarter of this year or quarter one of next year," Adamo says.
Green isn't as pessimistic and believes there will be continuous signs of economic strengthening in the United States this year. Normally, a stronger economy puts upward pressure on rates.
"2012 will be a mortgage rate tug of war," Green says. "The economy is pulling mortgage rates up. The Federal Reserve is pulling mortgage rates down."
The Fed says it will keep the key interest rate near zero until late 2014 and continues to reinvest in long-term securities and mortgage bonds to help push rates low.
Brett Sinnott, director of secondary marketing at CMG Mortgage in San Ramon, Calif., says he expects the Fed to take additional measures to keep rates low if they start to rise.
"If (the Fed does) not get the desired results I could see a potential for them to release another QE (quantitative easing bond-buying) program specifically geared toward housing and the mortgage industry," Sinnott says.
Another factor benefiting mortgage rates in 2012: This is an election year.
"With it being an election year, the government will do as much as they possibly can to not shake the boat one way or the other," he says.