A proposed measure in the economic stimulus package will raise the limit on how large a mortgage can be before it becomes a Jumbo loan. Currently this limit is $417,000 - loans below this limit can be financed through Fannie Mae and Freddie Mac as “conforming” loans, which can be 100 basis points (a full percentage point) lower than Jumbo loans. The proposed limit will be $729,750. It is not yet clear whether the final package will raise these limits in all areas of the country or in selected “high cost” areas.
See the San Jose Mercury News for further details.
WHAT ARE THE BENEFITS?
In the current tight credit market, jumbo loans are harder to fund, and by raising the limits, it will be easier to obtain financing, easier to refinance, easier to buy or sell your house, and if your mortgage is currently between 417,000 and 729,750 you will probably save about 1% per year ($4170 to $7297/yr) in interest.
ECONOMIC BENEFITS
It is expected that the new provisions will make more home sales possible that were held up by financing difficulties, and give some relief to eligible homeowners by allowing them to refinance at a lower interest rate. One estimate is that about $400 billion of jumbo loans would be eligible for financing at lower rates, so if these people saved 100 basis points, that’s $4 billion of additional discretionary income for those people.
WHEN WOULD THE NEW RULES BE EFFECTIVE?
If the mortgage provisions make it into the final bill, it will probably be signed into law in mid February 2008 and they are expected to stay in effect for mortgages written from then through the end of the year.
Check with your bank at the end of February to see if you can refinance your jumbo loan with a conforming loan with the new higher limits, and see how much money you will save. This may also be an opportunity to move some of your home equity into an investment that offers improved asset protection.
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