By Lew Sichelman
Mortgage rates may be on the upswing, but for a narrow band of at least 120,000 home buyers, rates will soon go down a bit.
Beginning Jan. 1, when the so-called "conforming loan limit" will increase by $12,700, anyone looking for a home loan between $240,000 and $252,700 will find mortgage costs anywhere from a quarter to half-a-percent lower than they are now.
The result will be an estimated savings of more than $525 a year or $15,750 over the course of a 30-year mortgage.
The loan limit is the ceiling on the single-family loans that can be purchased by Fannie Mae and Freddie Mac, the two government-sponsored enterprises which are charged with bringing liquidity to housing finance.
The two giant financial institutions keep the funds flowing to local lenders by purchasing their loans, packaging them into securities and selling them to investors throughout the world.
And since the companies are perceived to have Uncle Sam's backing, investors are willing to accept a little lower yield in return for the added security.
Estimates vary somewhat on the number of families who will benefit from the higher loan limit. Fannie Mae pegs it at about 120,000, but Freddie Mac says 150,000 is more likely.
However, neither forecast takes into account home buyers who might opt to put up a larger downpayment or take out a second mortgage to take advantage of the price differential.
Current home owners who might refinance to obtain the lower rate aren't included, either.
Furthermore, because the limit on loans insured by the Federal Housing Administration is tied by law to the ceiling imposed on Freddie Mac, the Department of Housing and Urban Development can be expected to raise its limits as well.
FHA loans aren't any cheaper than conventional financing, but they are usually easier to obtain. And as a result, thousands more buyers who don't meet Fannie and Freddie's stricter underwriting guidelines will be able to qualify for an a FHA mortgage.
The two government-chartered corporations also differ in their estimates of the savings that will be realized by the higher ceiling, but not by much. Fannie Mae says the difference will be $537 a year and $16,100 over the life of a 30-year loan. Freddie Mac says it will be $525 annually, or $15,800 over the full term.
The increase in the loan limit is based on the percentage increase in the average price of both new and existing houses sold from one October to the next as calculated by the Federal Housing Finance Board.
Thus, because the average rose 5.3 percent in the most recent October-to-October period, from $175,200 to $184,500, the ceiling will increase by a corresponding 5.3 percent.
The $12,700 increase for 2000 is in line with the previous two years. This year's ceiling is $12,800 above 1998 maximum of $227,150, and last year's was $12,550 higher than the $214,600 limit in 1997.
But it could have been significantly higher had housing prices not been falling since the summer. In August, the average was $186,300, but it dropped to $185,800 in September and to $184,500 in October.
In June, the average was $189,300, the highest it's ever been.
Limits on mortgages for two, three and four-unit properties also will increase by 5.3 percent next year.
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