SSFG: Payroll Tax and Future Increases in Mortgage Rates
Posted by Russ Schreier | Visited 408 times, 4 so far today | Leave A Comment »
Published by Alex Manessis and Russ Schreier of Samuel Scott Financial Group
The recent fight for the extension of the payroll tax into 2012 year is going to have an impact on the interest rates of those looking to receive a loan from Fannie Mae or Freddie Mac. In order to budget for the payroll tax cuts, the government has turned to the government sponsored enterprises, along with the Federal Housing Administration (FHA). Both companies, overseen by the FHA, beginning April 1st, 2012, will be raising their guarantee fees by 10 basis points (or .1%).
Guarantee fees are charged by mortgage-backed security (MBS) providers (such as Fannie and Freddie) to protect against loss in defaults, to aid in the securitization process, and to act as a source of revenue and capital. These fees enable investor’s capital to be brought in from the sale of the mortgage-backed securities, which in turn lowers the risk of investors. The guarantee fees are built into the interest rate, and thus will result in a .1% raise in interest rates as of April. This translates to an additional $17 a month for the median San Diego loan of $300,000. There is also the possibility of future increases in the guarantee fee as needed, although specific details are not in place.
What does this mean for those looking to receive a loan or refinance with a Fannie, Freddie, or the FHA? This fee hike coupled with the winding down of the Federal Reserve’s “Operation Twist” this summer will work to increase interest rates in the second half of 2012. For a potential homeowner or refinancer this means that now is the ideal time to pull the trigger on purchasing a home. Rates are not just low, they are the lowest they have been in over 50 years. An increase in the interest rate from roughly 4.00% today to 4.75% on a loan for a $400,000 home would result in an additional $96.54 a month or nearly $1,150 a year. By choosing to purchase or refinance now you are likely to save your self several hundred dollars a year in interest.
It is generally accepted that by the end of this year rates will have increased and that right now is likely the lowest rates will be for the near future. Freddie Mac Chief Economist wrote last week in his “executive prospectus” piece for the loan giant that the company expects rates to increase in the second half of 2012. As a potential buyer, one should look into making a purchase or refinance now before a potential rate increase later this year.
Although good deals will still be available 6 months or a year from now, they will not be quiet as financially rewarding as they are now if rates go up. If you are interested in purchasing a home or refinancing the loan you already have contact a loan professional at Samuel Scott Financial Group.
