Mortgage Prices May Be Set to Rise

Although mortgage interest rates have had more volatility recently than an explosion at a rubber ball factory, key trends may indicate that interest rates are set to rise over the coming months. If analysts are correct, it may soon make loans more expensive for house-hunters. Here are the three trends that experts think might cause the rise.

Changes in How Loan Officers Get Paid

New federal regulations have come into place on April 1 that changes how loan officers are compensated. The regulation restricts how loan officers are paid, and critics argue that that it will dis-incentivize loan officers from taking the time to process smaller loans.

Loan officers themselves are not fans of the new regulations. In fact, two trade organizations are suing the Federal Reserve in order to reverse the bill.

The regulations change the structure of the loan. Borrowers can choose to pay the loan officer up front, or take a higher rate with compensation folded in. Needless to say, no one is looking forward to this change and the higher rates associated with it.

Freddie Mac and Fannie Mae Adjust Their Risk Structures

These two government-controlled entities are adjusting their risk-based pricing structures. Borrowers with little equity, a small down payment or a mediocre credit score will be subject to higher interest rates.

They can avoid these higher rates by paying “points” upfront (a point is equal to one percent of the loan amount), but experts argue that it “sends the wrong message” in a housing market that’s just beginning to rally, and will prevent many from qualifying for a purchase or refinancing.

Federal Housing Administration Raises Premiums

Because the FHA is congressionally mandated to raise its capital reserves, it will be raising its annual mortgage insurance premium by one quarter of a percentage on all 15- and 30-year loans.

On average, borrowers will pay about $30 more per month. According to the Department of Housing and Urban Development, this increase would “be affordable to almost all homebuyers who would qualify for a new loan,” but critics argue that in the tight credit climate, that thirty dollars could make or break a deal by pushing a debt-to-income ratio out of the allowable bounds.

Let’s hope that these rising interest rates don’t come to pass, but if you are considering purchasing or refinancing, you will be wanting to watch the situation closely. For more information, contact your Realtors at Linton Hall Realty today!