Your Mortgage Payment May Be Getting Smaller

San Diego's Union Tribune reported recently that Congress was proposing legislation that would raise the conforming loan limit from its current maximum of $417,000 to $625,000, and even higher for high-priced areas. What does this mean to your monthly mortgage payment and your monthly interest rate?

Conforming Loans May Offer Lower Mortgage Interest Rates for You

Conforming loans generally come with better rates because they fall under the auspices of government-sponsored entities Fannie Mae (FNMA) and Freddie Mac (FRMC). Their mission is to standardize underwriting so that all of their loans are pretty much the same and are considered safe investments by investors in mortgage-backed securities.

In California, where the median home price is above the $417,000 conforming loan limit, many mortgage loans exceed this limit and fall into what is known in the industry as the "jumbo" financing category. Considered riskier than conforming loans, jumbo mortgages usually come with higher interest rates and stricter underwriting standards. With the rise in mortgage defaults, interest rates and qualification procedures have made it more difficult for borrowers to qualify for home loans. Congress is hoping that increasing the conforming loan limit will help boost the housing market by making it easier for homeowners to qualify for new mortgage loans at better interest rates.

How Much Can Be Saved on Your Mortgage Payment?

A year or so ago the difference between a jumbo loan and a conforming mortgage was only about .25%. Now, jumbo interest rates are .5% to a 1% higher. Using a mortgage calculator, inputting a loan amount of $500,000 and a current conforming interest rate of 5.875% (on a 30 year fixed rate fully-amortized mortgage) results in a payment of $2,958. Change the rate to a jumbo rate of 6.875% increases the payment to $3,285. The mortgage calculator shows the monthly payment for a jumbo loan is $327 more. And over the life of the loan, you could pay $117,008 more interest at the jumbo rate!

The recent troubles in the mortgage market have affected all aspects of our economy; currently, there is a strong push to revive and save it before further damage is done. Mortgage interest rates are still historically low, housing prices are down, and it is a great time to buy. If this legislation does pass, it may be easier for people to purchase a home or save by refinancing their current mortgage.

Buyers of Pricey Homes Could Get Break on Loans, by Roger Showley and Dean Calbreath, The San Diego Union Tribune, Friday, January 25, 2008.

Posted By :
Sheryl Landrum is a Loan Officer in San Diego, California and a freelance writer specializing in mortgage issues.

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