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Mortgage Loans to Become More Expensive

Adjustments based on loan risk, and premium price increases for mortgage insurance, could increase prices.

Editor's Note: Tom Smith is an Apple Valley resident with nearly 25 years in the mortgage business. He'll write a mortgage-related column for Apple Valley Patch once a month, providing an inside look at the industry and advice to homeowners or those looking to own a home. Tom is happy to answer individuals' questions. You can also check out his blog at http://www.omsiguy.blogspot.com.

As April 1 approaches, it's important for consumers to know that the cost of a mortgage is about to go up. There are two primary actions coming that will cause a home mortgage to potentially cost a consumer more, both in monthly payment and in cost of obtaining a mortgage.

Fannie Mae and Freddie Mac—the two main players in the conventional mortgage side of things—along with Federal Housing Administration are making adjustments that will affect monthly payments. On conventional loans they're making more adjustments based on the risk of the loan. This entails items like loan purpose, loan to value, credit score and other such items. These factors are adjustments to the pricing of the loan and can affect the interest rate for a consumer, thus increasing the monthly mortgage payment.

FHA, however, is increasing the premium for its mortgage insurance, which will also result in a higher mortgage payment.

Both items will affect your payment and the amount of mortgage for which you might qualify.

The other action kicking in to high gear is the Dodd-Frank Act. This is the federal government’s response to the meltdown in the financial industry, and it includes mortgage companies in the equation. Starting April 1, this act will, among other things, restrict how mortgage companies set their pricing and costs, pay their sales staff and meet certain reserves. All these will increase the cost of borrowing to the consumer.

The changes the government laid out aren't very clear, but they do say that not following these regulations will result in penalties for mortgage companies. The lack of clarity of the new guidelines is creating confusion for much of the industry, and could lead to higher rates for the consumer.

Now add these new guidelines to the disclosure laws that came out in the last few years, and the government seems to be confusing the consumer more and driving costs higher.

Some of this might not harshly affect a consumer, but some effect likely will be felt. But remember a couple things: Rates are still near all-time lows, and home prices are still way down, which makes home ownership affordable compared to years past. Based on this alone, take advantage of the opportunities that present themselves today that could otherwise dry up over time, as rates, home prices and values eventually go up.

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