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11 Apr 08
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The financial relief comes from the redefinition of jumbo loans, a category that includes all mortgages greater than $417,000.
Because area home prices are so high, jumbo loans have often been the only option for buyers. But such mortgages carry interest rates of at least half a percentage point more than smaller loans.
Federal law has barred Fannie Mae and Freddie Mac, the two companies that buy loans from lenders and sell them to investors, from buying loans of more than $417,000. Because lenders have no guaranteed market for their bigger mortgages, they assume more risk - hence the higher rates charged on loans over $417,000.
Under the proposed stimulus plan adopted by the House last Tuesday, Fannie Mae and Freddie Mac would be permitted to buy loans of up to $729,750
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That extra money can make a huge difference in affordability.
Monthly payments on a 30-year fixed-rate mortgage of $625,000 at an interest rate of 6.25 percent - the average jumbo rate in late January - would total $3,848.23. The same loan at the nonjumbo rate of 5.5 percent in late January would cost $3,548.68 a month, a difference of $299.55.
Michael Daversa, president of Atlantic National Mortgage, a brokerage firm in Westport, Connecticut, said he had already received calls from borrowers who wanted to refinance their current loans at the nonjumbo rates, even though it is not yet known if the new loan policies will get final congressional approval.
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The government's proposed new loan policies also include an increase in the size of Federal Housing Administration, or FHA, mortgages, which qualify for federal insurance. These loans carry less risk for lenders and therefore better terms for borrowers. Among other things, FHA loans require down payments of only 3 percent.
The loans are available to all borrowers, but their top limit is typically too low for many New York-area borrowers to take advantage of them.
In Fairfield County, Connecticut, and Essex County, New Jersey, for instance, the maximum FHA mortgage is about $363,000, which is far less than the median house price. Under the stimulus plan passed by the House, the FHA limit rises to $729,750 for all areas.
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