Conforming Loan Costs Are Rising, Says Freddie Mac

Mortgage rates may be dropping, but mortgage costs are not.

According to Freddie Mac, the average required discount points on a conforming mortgage rate are higher by 0.1 percent since early-May.

A "discount point" is prepaid mortgage interest; an up-front fee paid by a borrower in exchange for a lower mortgage rate. In most cases, discount points are tax-deductible.

Tax-deductible or not, though, rising costs are rising costs and Freddie Mac glosses over it.  In its weekly press release, the government group offers mortgage rate comparisons to weeks prior, but doesn't do the same for required points.

The press fails to mention discount points entirely.

An increase of 1/10 percent in discount points costs homebuyers and refinancing households an extra $100 per $100,000 borrowed.

The hike reminds us that there's more to a mortgage than just its rate -- costs matter, too.  And if you've only been watching the headlines, you would have missed how costs are rising.

It's A Good Time To Look At Adjustable Rate Mortgages

Each week, government-led Freddie Mac publishes a weekly mortgage rate survey based on data from 125 banks across the country.  According to this week's results, the relative rate of a 5-year ARM is extremely low versus its 30-year fixed-rate cousin.

Consider this comparison:

• In April 2009, the two products ran neck-and-neck with respect to rates
• In April 2010, the two products are split by 0.99 percent

On a $200,000 home loan, that's a difference of $117 per month to a mortgage payment.

Adjustable-rate mortgages aren't suitable for everyone, but they can be a terrific fit given your individual circumstance.  For example, any one of the following scenarios could warrant a 5-year ARM:

1. Buying a home with an intent to sell within 5 years
2. Currently financed with a 30-year fixed mortgage with plans to sell within 5 years
3. Interested in low payments and comfortable with longer-term interest rate and payment uncertainty

Additionally, homeowners with existing ARMs may want to refinance into a brand-new ARM, if only to extend the initial change date on the current note.

Before opting an ARM or a fixed, speak with your loan officer about how adjustable-rate mortgages work, and what longer-term risks may exist.  The savings may be tempting, but there's more to consider than just the payment.