Interest Rate and Credit Score

[Pea-n-Me]

Don't be confused. It is not about the interest rate it is about the fees that are added to your loan. But, thanks to the media dumbing down the issues, many are confusing these fees with interest rates.

I think it’s that and confusing language to start with - probably deliberate. Looking through various articles will make your head spin.

Can someone clarify...

Is this increase for people with "high" credit scores in the FEES or the INTEREST RATE?

If I understanding things correctly, the FEES are a one time charge that get rolled into the mortgage. If that's correct, on a $400,000 house, if you paid .25% in fees, that's $1,000. If you paid .375% in fees, that's $1,500. Numbers are from post #237.

So an extra $500 over the term of the loan to help others? If that's all this is, I really don't see the big deal.

@sam_gordon I think your question wasn’t answered because it seems few really know the answer at this point. But, respectfully, the letter I posted yesterday presumably is a clue. I’d hope that the financial gurus of those listed states have a better understanding of this than the rest of us do.

Directly from the letter:

”We write today expressing our deep concern with the new Federal Housing Finance Agency policy which goes into effect today and will have the net effect of making it significantly more expensive for people with good credit to buy houses. This new policy will force homebuyers with good credit to pay more on their mortgage every single month.”

Other posters on this thread have alluded to that, as well.

So yes, it is a fee, but it doesn’t seem like a one time fee; it seems more substantial, ie over the life of the loan.

Time will tell, I suppose, as more information comes out.

Honestly, it *should be* very transparent for new mortgage holders to see exactly what they’re buying into and how much it will cost them over the life of the mortgage.

 

[Tink3815]

This is what we do. Most of the Southwest flights for the past 10 years we have taken have been paid for with Rapid Reward points earned on normal everyday expenses we pay off every biweekly pay period online.
Seeing what you have spent in the last 2 weeks helps with budgeting, especially all the small amounts that add up fast.
We were not always in the position to not carry a balance, so I understand this is not for everyone. But if you have the cash to pay for things, it only makes sense to charge and pay off before the interest hits for the perks.

 

[GreatLakes]

I think it’s that and confusing language to start with - probably deliberate. Looking through various articles will make your head spin.



@sam_gordon I think your question wasn’t answered because it seems few really know the answer at this point. But, respectfully, the letter I posted yesterday presumably is a clue. I’d hope that the financial gurus of those listed states have a better understanding of this than the rest of us do.

Directly from the letter:

”We write today expressing our deep concern with the new Federal Housing Finance Agency policy which goes into effect today and will have the net effect of making it significantly more expensive for people with good credit to buy houses. This new policy will force homebuyers with good credit to pay more on their mortgage every single month.”

Other posters on this thread have alluded to that, as well.

So yes, it is a fee, but it doesn’t seem like a one time fee; it seems more substantial, ie over the life of the loan.

Time will tell, I suppose, as more information comes out.

Honestly, it *should be* very transparent for new mortgage holders to see exactly what they’re buying into and how much it will cost them over the life of the mortgage.

Usually you get the option of paying any lending fees up front or rolling them into the mortgage. I'm not sure about this specific fee but I'm home shopping so might find out soon, but if that holds true it doesn't have to be a recurring fee.

 

[Traveling on cc points]

Frankly, it is just a mental hold-over from the days when my husband was in business for himself and our income was so wildly variable from month to month or season to season that I didn't feel comfortable doing that. I probably should work on changing my attitudes toward credit - lord knows a decent travel points card would be an asset at this point in our lives - but some habits/insecurities just linger, you know?



Exactly. I'm not saying anyone should feel bad about their privilege, but it is worth being conscious of the fact that not everyone has access to those advantages when we're talking about how to make systems work on a society-wide scale.

I completely get where you are coming from.
When I met me husband 18 years ago, he only used cash or a check. It took him a very long time to get on board with paying everything with a credit card to earn rewards.

We haven’t paid for a flight in over a decade.

If you are interested, there is a popular thread on disboards called we love credit cards that you might find helpful.

 

[sam_gordon]

I can't find a source right now but I have seen numerous sources that indicate that in the worst case scenario, the loan payments would increase by $40 per month. Over a 30 year mortgage, that would be an increase of $14,400. I am not that generous.

But even $16 per year is offensive in that it is still my $16, not someone else's to give away or choose who it is given to.

And that's why I asked previously if these are fees or interest rate. If they're just loan fees, and previous posts are correct about a 0.175%(?) increase, there's no way that's $40/month.

 

[sam_gordon]

”We write today expressing our deep concern with the new Federal Housing Finance Agency policy which goes into effect today and will have the net effect of making it significantly more expensive for people with good credit to buy houses. This new policy will force homebuyers with good credit to pay more on their mortgage every single month.”

Putting an extra $500 in fees increases the loan by $500 (unless they're paid up front). That means one WOULD pay more every month (probably about $2/month depending on interest rate).

Just like advertisements will say "for only pennies a day!". They won't tell you it's 100 pennies a day or 500 pennies day.

 

[dreamer17555]

I don't think it was a tip or trick when it's simply not available. The reason many kids have the ability to be authorized users now is the CC companies 1) allowing this 2) many more CCs out there especially rewards ones 3) the law was changed to be 21 without parental authorization for a CC so on the flipside you sorta had to open the ability for these kids to get credit.

Can you tell me what law you are talking about that people cannot get credit cards at 18 without parental permission? My daughter got a credit card as soon as she turned 18. I did not sign off on it. This was in 2020. She had been an authorized user on our cards from the time she was 16 and that did help her build some credit.

The card she got was an unsecured student Discover card with an extremely small credit limit that definitely grew over time. It’s now x7 what it originally was (she just turned 21).

Also, for what it’s worth, her credit score, seems really high for her age. So much higher than my credit score at her age.

 

[Pea-n-Me]

This was another article saying the same. I researched the author and she seems like she knows what she’s talking about. I could not find a political bias on her. She has a very good reputation in the financial/tech industry.

https://www.gobankingrates.com/loan...ate-will-housing-prices-skyrocket-or-plummet/

”The Federal Housing Finance Agency passed a new rule on Monday, May 1, with the intention of making it more affordable for first-time homebuyers, lower-income borrowers and high-risk borrowers to get a conventional mortgage loan to buy a home. However, the rule could also raise the mortgage payments of some borrowers with good credit by more than $60 per month.”

Sixty dollars per month is a huge amount of money! That’s $720.00/yr or $21,600 over 30 yrs, if my math is correct.
(A year or more of college, for many.)

 

[BleuB]

I don't know if anyone has posted this yet but the FHFA attempted to clarify due to outrage.

https://www.fhfa.gov/mobile/Pages/p...ctor-Sandra-Thompson-on-Mortgage-Pricing.aspx

 

[sam_gordon]

This was another article saying the same. I researched the author and she seems like she knows what she’s talking about. I could not find a political bias on her. She has a very good reputation in the financial/tech industry.

https://www.gobankingrates.com/loan...ate-will-housing-prices-skyrocket-or-plummet/

”The Federal Housing Finance Agency passed a new rule on Monday, May 1, with the intention of making it more affordable for first-time homebuyers, lower-income borrowers and high-risk borrowers to get a conventional mortgage loan to buy a home. However, the rule could also raise the mortgage payments of some borrowers with good credit by more than $60 per month.”

Sixty dollars per month is a huge amount of money! That’s $720.00/yr or $21,600 over 30 yrs, if my math is correct.
(A year or more of college, for many.)

Of course, this author who "seems like she knows what she's talking about" doesn't explain where she gets the more than $60/month. BUT, a couple of paragraphs later, gives SOME detail...

A buyer with a credit score of 750+, for instance, who puts down 25% would pay 0.375% in fees, compared to 0.25% previously. But a buyer with a credit score of 659 in the same example would now pay 1.5% in fees compared to 3% under the old rules.

So, let's do the math...
OLD
0.25% fee on a $400,000 loan is $1000 (400,000 * 0.0025).

NEW
0.375% fee on a $400,000 loan is $1500 (400,000 * 0.00375).

That's where I got the difference of $500.

Now, if someone can point out where they got the $40/month, $60/month, whatever MORE for someone with "good" credit, I'd really appreciate it. All I've seen so far is this increases the FEES on a loan.

 

[Pea-n-Me]

Of course, this author who "seems like she knows what she's talking about" doesn't explain where she gets the more than $60/month. BUT, a couple of paragraphs later, gives SOME detail...

So, let's do the math...
OLD
0.25% fee on a $400,000 loan is $1000 (400,000 * 0.0025).

NEW
0.375% fee on a $400,000 loan is $1500 (400,000 * 0.00375).

That's where I got the difference of $500.

Now, if someone can point out where they got the $40/month, $60/month, whatever MORE for someone with "good" credit, I'd really appreciate it. All I've seen so far is this increases the FEES on a loan.

I guess we stay tuned.

 

[RamblingMad]

Of course, this author who "seems like she knows what she's talking about" doesn't explain where she gets the more than $60/month. BUT, a couple of paragraphs later, gives SOME detail...

So, let's do the math...
OLD
0.25% fee on a $400,000 loan is $1000 (400,000 * 0.0025).

NEW
0.375% fee on a $400,000 loan is $1500 (400,000 * 0.00375).

That's where I got the difference of $500.

Now, if someone can point out where they got the $40/month, $60/month, whatever MORE for someone with "good" credit, I'd really appreciate it. All I've seen so far is this increases the FEES on a loan.

If journalists were good at math, they'd be engineers or work in finance.

 

[GreatLakes]

Aren't these fees only applied if you are going FHA for a mortgage? If you have good credit I'm not sure why you'd go FHA. Am I reading that wrong? These are only adjusted for FHA loans?

 

[sam_gordon]

If journalists were good at math, they'd be engineers or work in finance.

I was a journalist at one time.

 

[RamblingMad]

Aren't these fees only applied if you are going FHA for a mortgage? If you have good credit I'm not sure why you'd go FHA. Am I reading that wrong? These are only adjusted for FHA loans?

This is a fee between Fannie Mae and the lender. It's up to the lender for how they pass on the fee.

 

[Colleen27]

So, let's do the math...
OLD
0.25% fee on a $400,000 loan is $1000 (400,000 * 0.0025).

NEW
0.375% fee on a $400,000 loan is $1500 (400,000 * 0.00375).

That's where I got the difference of $500.

Now, if someone can point out where they got the $40/month, $60/month, whatever MORE for someone with "good" credit, I'd really appreciate it. All I've seen so far is this increases the FEES on a loan.

I'd like to see that as well. I assumed it was based on rolling the fee into the loan and therefore paying interest on the increase, but the math doesn't work on that either. An extra $500 in principle should add less than $10/mo. And the link in the last article shared that appears like it should take you to a source just redirects to the website's home page.

I'm also extremely skeptical of the "it is just like 2008!, we can't do anything about housing affordability or we'll have another bubble-crash!" reasoning. We're talking about FHA loans here - staid, fixed-rate, 30-year loans. The precipitating crisis in '08 was "innovative" loans with adjustable rates and balloon payments and no documentation, along with overuse of home equity products. It is apples to tomatoes; technically both red fruit/home loans, but that's where the parallels stop.

Of course, if we do head into recession as the fed seems to want, some people will lose their homes as their household income declines, but that's true of every recession and isn't caused by housing policy. And, in fact, with the rate at which rents are rising, making homebuying more accessible to lower-income and lower-score buyers could very well exert some counterpressure on that because mortgage payments in many markets are a lower monthly obligation that is far more stable from year to year than rent right now.

 

[sam_gordon]

I'd like to see that as well. I assumed it was based on rolling the fee into the loan and therefore paying interest on the increase, but the math doesn't work on that either. An extra $500 in principle should add less than $10/mo. And the link in the last article shared that appears like it should take you to a source just redirects to the website's home page.

I read another site this morning that said the fee is going to a little over 1% from .75% (going off memory, don't quote me). The math worked out to a $1200 increase over the life of the loan.

Doing a quick google search for "mortgage calculator", it would take an additional $6000 on a 30 year loan at 7.38% (the default on the calculator) to add $40 to your monthly fee.

$6000 on a $300,000 loan would be 2%. So the fee INCREASE would need to be 2%.
$6000 on a $200,000 loan would be 3%. The fee INCREASE would need to be 3%.

It appears the fee increase is somewhere around 0.5% (if not less). A $6,000 increase would have to be on a loan of over $1M to have it match the 0.5%.

If my math is wrong, someone please correct me.

 

[RamblingMad]

I'd like to see that as well. I assumed it was based on rolling the fee into the loan and therefore paying interest on the increase, but the math doesn't work on that either. An extra $500 in principle should add less than $10/mo. And the link in the last article shared that appears like it should take you to a source just redirects to the website's home page.

I'm also extremely skeptical of the "it is just like 2008!, we can't do anything about housing affordability or we'll have another bubble-crash!" reasoning. We're talking about FHA loans here - staid, fixed-rate, 30-year loans. The precipitating crisis in '08 was "innovative" loans with adjustable rates and balloon payments and no documentation, along with overuse of home equity products. It is apples to tomatoes; technically both red fruit/home loans, but that's where the parallels stop.

Of course, if we do head into recession as the fed seems to want, some people will lose their homes as their household income declines, but that's true of every recession and isn't caused by housing policy. And, in fact, with the rate at which rents are rising, making homebuying more accessible to lower-income and lower-score buyers could very well exert some counterpressure on that because mortgage payments in many markets are a lower monthly obligation that is far more stable from year to year than rent right now.

The regional banks are a dumpster fire right now. And Powell is sending rates to the moon like Buzz. What could possibly go wrong? This fee is the last thing I’m worried about.

 

[Ms.Minnie]

Did you even read the examples that have been posted? The borrower with a good score isn't being "penalized". They're getting less of an advantage than before, so that borrowers with "bad" (though average would likely be more accurate because bad scores don't qualify for mortgages) credit pay slightly lower - but still considerably higher than their better-scoring counterparts - fees.



But that's still a matter of privilege - having parents with active credit and good scores who can add him. We're a cash-only family; DH & I both opened one card each when the total absence of credit started impacting our ability to get car insurance and cell phones, but adding the kids to our (crappy, no fee but low limit) cards as authorized users isn't going to get them 800+ credit scores. Hell, having those cards with very low/no balances, paid on time for many years, hasn't gotten *us* 800+ scores. I think people who actively manage their credit underestimate how badly the system penalizes simply paying cash/saving for purchases and avoiding credit except when necessary (like when buying a house).

To the first two highlighted comments, this is just a play on words, in the end the person with good credit is paying more and the person with not so good credit is paying less. Call it what you will the net result is that good credit is being charged more or penalized to offset the lowered cost applied to those with lower credit scores.

I don't agree that this is a matter of privilege. It's a matter of good money management skills and educating your children accordingly. Again, something that our schools should be teaching our children as part of a math curriculum, making those students aware of the importance of credit, credit scores and the impact of paying just the minimum payment on credit cards. You have chosen to pay cash as you go, good for you. That is not a bad choice, but you seem to feel that you have done yourself a disservice by do so. I chose to use my credit cards to my advantage, making just about all purchases on credit cards and paying them off at the end of the month. It's called using other people's money. The trick is to not buy more than you can pay for.

Just back from a road trip across California, Arizona, New Mexico and Texas. Ate at a restaurant in Sedona that calculates your bill with both the cash and credit price. They add a 3.8% surcharge for credit. It is well posted all over the restaurant that they "can no longer afford to subsidize credit card rewards". So I ALWAYS have cash because if I can get a discount, I'm going to. I can see their problem, that 3.8% can be the difference between making and losing money on a meal.

This is a new trend that I have encounter twice now in local restaurants. I understand why a merchant may want to do this, but I don't like it, LOL. In reality the extra charge is relatively small and practically offset by the rewards program on the credit card. I just hope that ALL merchants don't decide to do this, if they do, I may have to start carrying cash which I don't want to do.

 

[sam_gordon]

I reality the extra charge is relatively small and practically offset by the rewards program on the credit card.

But an extra <0.5% on your loan is large? And isn't it practically offset by the interest deduction? You're willing to pay an extra 3+% every time you use your CC, but the extra 0.5% mortgage fee is too much? Which one do you think costs you more money over a year?