4 Reasons Mortgage Costs Are Going up

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Mortgage rates are currently lower than many experts predicted – compare this week’s rate report to mortgage predictions for 2011 – but that doesn’t mean mortgage costs are going down.

New rules put in place because of the housing collapse are starting to take effect. Some started this month, and more will in October.

To find out what’s changing and how it might affect you as a home buyer, watch the report from Stacy below. Then read on for links and advice on getting your best mortgage deal despite the new rules.

First, let’s recap the changes from the story above and provide a bit more explanation.

  1. Loan officer income is shrinking. A rule change that went into effect April 5 – after two mortgage industry groups lost a legal battle to block it – may cause homebuyers to pay more, even though the intent of the rule is to protect them. The idea was noble: Keep loan officers from steering clients toward loans that paid them more commission but charged borrowers higher rates or fees. The way mortgage brokers are compensated is now more restricted – and especially in the case of smaller loans, often less lucrative. Unintended negative side effect? In the past, loan officers could divert part of their commission to help the borrower qualify for a loan. Now that is also against the rules. 
  2. Higher-risk borrowers face higher rates. Another change that went into effect this month – again, meant as a protection to keep people from getting into mortgages they can’t afford – will result in borrowers with lower credit scores ending up with higher rates from mortgage guarantors Fannie Mae and Freddie Mac. In short, the bar has been raised, meaning those with lower scores will face higher interest rates and bigger down payments.
  3. FHA insurance premiums are up. As of April 18, loans insured by the Federal Housing Administration (which helps lower-income buyers afford housing) cost one-quarter of a percent more. This means about $30/month more out of the average homeowner’s pocket, according to the U.S. Department of Housing and Urban Development. They call it a “marginal increase” that will “strengthen the Federal Housing Administration’s capital reserves.”
  4. Loan limits are dropping. While this won’t take effect until Oct. 1, the limit for loans guaranteed by Fannie Mae and Freddie Mac in high-cost areas is scheduled to drop from $729,750 back to the 2008 level of $625,500. What this means is that people wanting bigger loans will face higher interest rates.

All of these changes mean borrowers will pay more for a mortgage. But the ways to save are the same, and we’ve been discussing them here in the past few weeks.

Start by shopping hard for rates and fees with the Money Talks mortgage rate search, then learn more by checking out these stories:

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  • Anonymous

    Thank Barny Frank and friends for Title V of P.L. 110-289, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”) favors large banks and unfairly penalizes small mortgage loan originators, creating a huge bureaucracy (eg: the Nationwide Mortgage Licensing System & Registry) and infringes on States rights, since they already regulate their real estate professionals. Many mortgage loan originators are being forced out of business from the unnecessary paperwork and licensing requirements which duplicates many of the State requirements. Because of this, large banks (Chase, BofA, Citicorp, etc.) will soon have a near monopoly on loan origination and you will see home loans more expensive and controlled by the Fed. Government- can anyone say “socialism”?

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    Very good article. I think oil prices and prices of food are closely related to the mortgage prices.

    In the next few years prices of property are going to go up in the United States but after 2016 they will go down since China is going to surpass the economy of the USA.

  • Anonymous

    In my opinion, we will surely face the increase of mortgage rates. Remember that at the beginning of march Treasury Secretary Timothy Geithner said that in near future mortgage costs will rise. This should happen after the completion of reforms to the national housing finance system a.

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    with house prices so low at least the overall cost of ownership isn’t that high.