Will Home Mortgages Become More Expensive, Soon?
Did you know new lending guidelines will be in place beginning this March?
Home prices have been on the rise and along with that the mortgage interest rates too, have gone up. Lending rules are getting tougher. Even though Fannie Mae and Freddie Mac do not originate new mortgages they do buy about 66% of the loans underwritten by the banks. Fannie Mae and Freddie Mac have announced new tougher guidelines which go in effect starting March 2014. This is expected to easily add about half a point to the interest rate that a fixed rate borrower will pay.
Next month in February 2014 federal rules known as “ability to re-pay” and “qualified mortgage” are also set to kick in. These rules impose tough penalties for banks that write unconventional mortgages that go into default later on. With the fear of penalties, banks will not have much leeway when considering loans to borrowers who are self-employed, who are commissioned or have a new job.
The governments’ bond buying program called Quantitative easing has helped keep the interest rates low till now. However the Fed is winding down on quantitative easing, what this means is that we should expect to see a rise in the mortgage interest rates.
What should those buyers do, those who are considering buying and will also need financing? Buyers who are on the fence about buying should not wait much longer because higher interest rates erode buying power. If for example a buyer is qualified for $200,000 home mortgage at 4.75% for a term of 30 yrs. The monthly installment will be $1043.29. If the interest rate goes up to 5.5%, to keep the monthly installment at $1043.29 the mortgage amount has to be $183,746. So the buyer gets a smaller home for the same installment or the monthly installment has to go up approximately $92.29 up to $1135.58 for a mortgage amount of $200,000 and a loan term of 30yrs.