Mortgage FEES *voluntarily paid by consumers* hit 20 year high point

1 point, or 1%, means that between underwriting fees, discount points, processing whatever, total lender fees, are 1% of the loan amount. So if you’re buying a $700k home with 20% down and taking out a $560k loan, you’re paying $5600 in lender fees. When google tells you that “closing costs are 2-5%” without breaking down what those closing costs are, it’s of course really to hide 1% in there, no? That would just put “total closing costs” (a completely useless term, by the way) at 4% instead of 3%, which is right in that range that google told you.

Real numbers from here:

https://www.freddiemac.com/pmms/pmms30

They are assuming a conforming conventional loan (not high balance, not jumbo, not FHA, not VA), 20% down, single family home, 740+ FICO score. (You can find the high balance cutoff for your specific county at this link, make sure you switch it from “FHA forward” to “Fannie/Freddie” — https://entp.hud.gov/idapp/html/hicostlook.cfm )

The 2019 “baseline,” annual figures:

Average rate, 3.94%

Average fees, 0.5%

May 2022:

Average rate, 5.23%

Average fees, 0.9%

2001, annual figures:

Average rate, 6.97%

Average fees, 0.9%

The picture isn’t as clear with the points as it is with the rates, but fees have also generally been trending down for about 40 years.

Commentary.

The fees are optional. You can turn the dial one way, and the fees go up while the rate goes down. You can turn the dial the other way, and the fees go down as the rate goes up.

This is you placing a bet. You can’t avoid it, you must place a bet, even if you aren’t the gambling sort.

If you think current rates are permanent (and/or will be going higher forever), and that we are not about to have a recession, then paying the ~1 point makes sense.

If you think that, just like “what went down (to 2.5%), must come up (to 5.5%),” it’s also plausible/probable that “what goes up, must come down,” (and/or if you think things gravitate towards long-term existing trend-lines) then it doesn’t make sense to pay the points.

You can calculate the break even point by the formula of [dollar cost of points / monthly savings relative to 0 points / 12]. You might find a 2 year break even (especially on “volatile” rate days), more commonly it’s going to be 4+ years. Designate the break even as X. If you buy points, that means you’re betting on 2 things: 1) we will not have a recession within the next X years, and 2) if we do have a recession, rates will not drop down, there will be no talk of QE or “stimulating” the economy, the powers that be will just let the economy sort itself out, without any intervention.

No crystal balls here, so for all I know you could win that bet. Who knows. It’s a probabilities game, what do we (or, rather, you) think is LIKELY to happen?

If we do have a recession and rates drop in less than X years (ie, if any high mucky mucks say we need to “QE” or “stimulate” the economy to help bring us out of the recession), but the recession does not feature real estate values imploding (most don’t, especially not when there’s inflation afoot), you will in retrospect be kicking yourself that you paid those points. They didn’t have time to break even, and now you can probably get some lower rate with zero points.

This happened in between 2018 and 2019. Shit tons of people bought houses in 2018 (rates had jumped up since 2017), and almost all of them refinanced in 2019 (when rates gravitated right back to the trend-line they had previously been on), many even did so again in 2020. COVID was a one-off, so disregard that refi. Paying points in 2018 to buy down the rate marginally, and then getting an even lower rate in 2019, with no points, means that paying those fees in 2018 was, and/or would have been, a waste of money.

Food for thought. I saw the average points paid by consumers slip from 0.7 to 0.8 earlier this year and thought that was it, I didn’t realize y’all were out there doing this. Do me a favor and try NOT to hit 1.0, in this case you probably do NOT want to party like it’s 1999! We as individuals can’t do shit about rates going up or down, but we can turn that “points and fees” lever this way or that.

submitted by /u/aardy
[link] [comments]

1 point, or 1%, means that between underwriting fees, discount points, processing whatever, total lender fees, are 1% of the loan amount. So if you’re buying a $700k home with 20% down and taking out a $560k loan, you’re paying $5600 in lender fees. When google tells you that “closing costs are 2-5%” without breaking down what those closing costs are, it’s of course really to hide 1% in there, no? That would just put “total closing costs” (a completely useless term, by the way) at 4% instead of 3%, which is right in that range that google told you. Real numbers from here: https://www.freddiemac.com/pmms/pmms30 They are assuming a conforming conventional loan (not high balance, not jumbo, not FHA, not VA), 20% down, single family home, 740+ FICO score. (You can find the high balance cutoff for your specific county at this link, make sure you switch it from “FHA forward” to “Fannie/Freddie” — https://entp.hud.gov/idapp/html/hicostlook.cfm ) ​ The 2019 “baseline,” annual figures: Average rate, 3.94% Average fees, 0.5% ​ May 2022: Average rate, 5.23% Average fees, 0.9% ​ 2001, annual figures: Average rate, 6.97% Average fees, 0.9% ​ The picture isn’t as clear with the points as it is with the rates, but fees have also generally been trending down for about 40 years. Commentary. The fees are optional. You can turn the dial one way, and the fees go up while the rate goes down. You can turn the dial the other way, and the fees go down as the rate goes up. This is you placing a bet. You can’t avoid it, you must place a bet, even if you aren’t the gambling sort. If you think current rates are permanent (and/or will be going higher forever), and that we are not about to have a recession, then paying the ~1 point makes sense. If you think that, just like “what went down (to 2.5%), must come up (to 5.5%),” it’s also plausible/probable that “what goes up, must come down,” (and/or if you think things gravitate towards long-term existing trend-lines) then it doesn’t make sense to pay the points. You can calculate the break even point by the formula of [dollar cost of points / monthly savings relative to 0 points / 12]. You might find a 2 year break even (especially on “volatile” rate days), more commonly it’s going to be 4+ years. Designate the break even as X. If you buy points, that means you’re betting on 2 things: 1) we will not have a recession within the next X years, and 2) if we do have a recession, rates will not drop down, there will be no talk of QE or “stimulating” the economy, the powers that be will just let the economy sort itself out, without any intervention. No crystal balls here, so for all I know you could win that bet. Who knows. It’s a probabilities game, what do we (or, rather, you) think is LIKELY to happen? If we do have a recession and rates drop in less than X years (ie, if any high mucky mucks say we need to “QE” or “stimulate” the economy to help bring us out of the recession), but the recession does not feature real estate values imploding (most don’t, especially not when there’s inflation afoot), you will in retrospect be kicking yourself that you paid those points. They didn’t have time to break even, and now you can probably get some lower rate with zero points. This happened in between 2018 and 2019. Shit tons of people bought houses in 2018 (rates had jumped up since 2017), and almost all of them refinanced in 2019 (when rates gravitated right back to the trend-line they had previously been on), many even did so again in 2020. COVID was a one-off, so disregard that refi. Paying points in 2018 to buy down the rate marginally, and then getting an even lower rate in 2019, with no points, means that paying those fees in 2018 was, and/or would have been, a waste of money. Food for thought. I saw the average points paid by consumers slip from 0.7 to 0.8 earlier this year and thought that was it, I didn’t realize y’all were out there doing this. Do me a favor and try NOT to hit 1.0, in this case you probably do NOT want to party like it’s 1999! We as individuals can’t do shit about rates going up or down, but we can turn that “points and fees” lever this way or that. submitted by /u/aardy [link] [comments]

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