Well, Americans had better enjoy the extra $40 they’ll continue to get in their bi-weekly pay checks for the next two months, because most of them will be paying for it many times over in the form of higher mortgage costs.
Lost in the contentious debate over the payroll tax cut extension, a 2% cut in U.S. workers’ Social Security tax, was the devious way devised to pay for it.
The law that Congress passed and President Obama signed, included a provision that will increase a guarantee fee that finance companies Fannie Mae and Freddie Mac charge to mortgage loan originators, a fee that will get passed onto borrowers as slightly higher interest rate.
The 0.1% increase doesn’t sound like much. It would add $11 a month to the payment of a $200,000 loan and $18 a month to a $300,000 loan. But it adds up over the life of a 30 year mortgage. A $200,000 loan would end up costing $3,863 more, while a $300,000 loan would cost $6,246 more. That’s quite a premium to pay for an average payroll tax cut benefit of less than $200, and most people will never even know they’re paying it.
The hidden tax, which goes into effect April 12, will affect most people buying or refinancing a home, as Fannie Mae and Freddie Mac account for about 60% of the U.S. mortgage market.
It is scheduled to last 10 years in order to produce the $37.5 billion needed to cover the payroll tax cut extension and an extension of unemployment benefits for up to 99 weeks. You do the math!
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