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Good News for New Home Loans
by Sheryl Landrum
CMR Columnist
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Congress is pushing through legislation that will up the conforming home loan limit from the current $417,000 mortgage amount to $625,000 in California and up to $729,750 in the state's most expensive markets. This could be great news for Californians and others that are affected by high home costs and mortgages. How will this change affect home mortgage loans for purchases and/or mortgage refinances?
Sometimes Bigger is not Better--Especially When it Comes to a Home Mortgage
Currently, mortgages considered "conforming" loans, no more than $417,000, are sold on the secondary market through Fannie Mae and Freddie Mac. Because these loans are considered a safer commodity, lenders offer them at a lower home mortgage interest rate than those mortgages that exceed the $417,000 limit--these loans are called jumbo loans and their rates can be .5-1% higher.
On a home mortgage loan of $650,000, @ 6.75% the principle and interest payment would be $4,216 a month; dropping the mortgage .5% to 6.25% would lower the payment to $4,002--a savings of $214 per month. If the rate dropped a full 1% to 5.75%, the same mortgage of $650,000 would now have a principle and interest payment of $3,793--$423 a month less. Not only does the reduction in the mortgage interest rate save a significant amount every month, the interest paid over the life of the loan is over $150,000 less!
Another perk to upping the conforming loan limit is that conventional loans are easier to qualify for. Due to the rise in mortgage foreclosures and the failing of so many home loan lenders, jumbo loans are much harder to qualify for than conforming loans. Many borrowers who would have been granted good home loan mortgages a year or so ago are having a much harder time qualifying for a new home mortgage or to refinance their current homes.
So What's on the Horizon for Home Loans?
The economy is reeling from the crisis in the mortgage industry. Usually the conforming home loan limit is set annually so any increase in the conforming home loan amount may be in force for a year. Those trying to refinance adjustable mortgages into more conservative home loans or looking to buy a new home may benefit from this legislation if enacted.
Source:
Buyers of Pricey Homes Could Get Break on Loans, by Roger Showley and Dean Calbreath, The San Diego Union Tribune, Friday, January 25, 2008.
About the Author
Sheryl Landrum is a loan officer and a freelance writer specializing in mortgage issues.
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