Photo: Flickr / Neal Gillis
A hidden fee on home mortgages is set to increase this spring, likely causing interest rates on single and multi-family homes to rise, reports the New York Times’ Vickie Elmer.Government-sponsored lenders like Fannie Mae and Freddie Mac have been adding the guarantee fee — also known as the G-fee — onto their loans since the 1980s. Both lenders hold about 95 per cent of all new mortgages in the country.
The fee serves as insurance to the lenders in case the borrower defaults on the loan.
Fannie Mae collected $5.6 billion in single-family guarantee fees in the first nine months of 2011 alone. Towards the end of last year, the fees increased by an average of 0.3%. Rates on multi-family loans are slightly higher, falling between 0.46% to 0.51%.
However, the newest fee mandated by the payroll tax cut extension act of December will be effective April 1 and raise the single-family loan by an additional 0.1%.