With all the news about the approval of the increased conforming limits, the fears of recession, and just plain ol’ instability in all markets, its hard to keep up with rates and how they may affect refinances and purchase.  Yesterday, we saw a whole 1/2 point rate drop on the 30-year fixed programs.   What will it be today is anyone’s guess.   Interest rates are in high flux so if you’re looking to refinance or purchase it is important to keep in close contact with your lender or mortgage broker because 1/2 point swings can make significant impact on when you decide to write those contracts and lock in the rates. 

 Here’s a snapshot of what we see right now at Bankrate:

No more crossing fingers, pacing across your home wondering if there will be a conforming loan increase,  President Bush signed the Economic Stimulus Act of 2008 today.  HOWEVER, now the question is when will it be available and how.  The implementation of the limits may take some time to make the limits available.  There are lots of procedural changes the lenders and banks have to make to effectively carry out this plan.  Fannie Mae, Freddie Mac, and the lending institutions have to implement new policy and determine new guidelines and risk level to make sure they are protected with these loan limit increases.  It could possibly take months before actually being available for use.  Also, there may be some differences in regions as to the exact limits and restrictions on the use of this proposal.  Before making any assumptions about buying with this new conforming limit, you should check with your agent or representative to get the latest facts. When and how are the major questions at this time…

Today February 7th, 2008, the Senate passed their version of the Economic Stimulus plan which includes an increase in the conforming loan limits. This is expected to get signed into legislation shortly (if there are no other obstacles) and it should open some opportunities for buyers or homeowners who have been waiting for such a break towards their next home purchase or refinance. This post here, shows an example of how your monthly payment can be affected by this increased loan limit.

As many may have already heard Congress and the White House has proposed that the conforming loan limits be increased from the current $417,000 to a whopping $729,750.

What does this mean to you as a homeowner ? Here’s an example (example simplified for purposes of illustration):

Let’s say you bought a home in Evergreen for $900,000 and put a down payment of 20% or $180,000. The amount left to finance would be $720,000. At today’s conforming loan limits ($417,000) your loan would be considered a jumbo loan. Let’s further say that the jumbo rate is 6.5% (again a hypothetical number for illustration purposes) , then your monthly payment under the current limits would be $4598.34. Now fast forward to a happy scenario where the Senate does indeed approve the package and thus the bill jumps through all the hoops, your loan at $720,000 would be considered a conforming loan. What this mean ? Well generally conforming loans have lower interest rates! Conforming rates today show a value of 5.52% as compared to the 30-yr jumbo rate of 6.6%. So at the conforming rate, your monthly payment would be $4097.12. This is a difference of $501.22/month or $6014.68 in annual savings.  An important proposal ?  Yes, indeed.  Its all in the Senate’s hands now to make more happy homeowners.  We’ll keep a close watch on this development.

It is too early to tell but this news does create even more volatility in the markets. Stocks down, stocks up. Rates up, rates down. Recession, no recession. To buy or not to buy… For the average homebuyer, this should not make any decisions any easier or worse. The Fed Funds rate was cut to 4.75% from 5.25% in June (50 basis points) and the prime rates dropped from 8.25% to 7.75%. What does this mean to home equity lines of credit ? Well for every $50,000 borrowed, this means consumers pay $20 less than before ($342 on 8.25% vs $322 on 7.75%) How about loans ? Well, a house worth $800k is still worth $800k but the monthly payments may be slightly less than before the changes. On a larger scale i.e. 80/20 scenario ($640k loan) 50 basis points may mean $266 of savings a month if it is directly translated into a lower rate (?) That is barely enough to divert the savings to increase in gas prices. Will it save homeowners who are close to foreclosure or defaulting on their loans ? Not quite. The damage has already been done. But enough for households to jump back into the market ? Not sure… For those waiting on the sidelines, this may lead to some short-term opportunities for qualified buyers…More rate cuts coming ? Too early to say…