One of the jobs of Fannie Mae and Freddie Mac is to guarantee home loans to lenders who make them.  When loans are made through either of these entities, the lender can feel safe that through these agencies their funds will be insured and guaranteed against default by their borrowers.

These agencies do not insure these loans for free, however.  They, like any other insurer, charge the lenders a fee for this insurance.  The fees vary from year to year, and are called "guarantee fees" (g-fees). As announced last week by the Federal Housing Finance Agency (who regulates both agencies), a new increase is due to go into effect between November 1st and December 1st of this year.  It is estimated to be a 0.5 percent increase in the mortgage rates no matter which lender they choose.

What does that mean to the average borrower?  As calculated below by  Justin McHood of Zillow Blog, if the interest rates go from 3.5% to 4% on a 30 year mortgage, the difference in a principal and interest payment would be as follows:

Loan Amount                      3.5%                             4%                    Rise                  

$100,000                            $449                            $477             $28

$200,000                            $898                            $955             $57

$300,000                           $1347                          $1432             $85

$400,000                           $1796                          $1910            $114

 While not a major change, this rise is the second time in 2012 that an increase has been announced.  One was levied earlier in April of this year.  If you are considering purchasing a home, whether a Piedmont home, an Oakland home, or any other, this should be one, of many financial issues involved in making your decision. 

Posted by Bruce Wagg on


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