The 2009 American Recovery and Reinvestment Act (ARRA) extended higher limits for so-called conforming mortgages, which helped keep mortgage rates lower for home buyers living in high-priced areas of the US, including New England. Barring a change in current law, the conforming mortgage limit extension will run out for loans originated at the end of September.
One of the functions of now-infamous Freddie Mac and Fannie Mae is to purchase and securitize mortgages that fit certain specifications. Among the criteria is the size of the loan; a single-family loan larger than $729,750 (in certain counties) is considered non-conforming and typically carries higher interest rates than conforming loans. In much of the Boston area, the ARRA limits allow an upper loan limit of $523,750, and that maximum would likely drop back to $417,000. In the most expensive markets, like San Francisco, the limit would be reduced to $625,500.
There’s typically a difference of ½ to ¾ of a percentage point in the interest rate paid for a “jumbo” loan (bigger than the conforming limit) and a conforming one, and many jumbo mortage lenders require at least a 30% downpayment.
Although the difference between the interest cost of a jumbo loan vs. a conforming one is probably not enough to justify rushing into a home purchase to get a lower rate, borrowers looking to refinance should keep in mind that the conforming limits are likely to rise. Lenders are likely to start reflecting the anticipated interest rate increase in loan quotes made as early as the end of July, according to a recent WSJ article