Since the 1930s when they were created, the majority of Las Vegas (and American) home buyers have relied on a 30-year mortgage to purchase their homes. Seventy-one percent of home buyers selected a 30-year mortgage when they purchased a home last year, according to the Urban Institute.
These mortgages come with a federal guarantee, thanks to Fannie Mae and Freddie Mac. Here’s how it currently works:
These two entities purchase your mortgage loan and package it into bonds (called securitization), which they sell to investors. Securitization passes along the risk that you won’t pay your mortgage onto the bond holders. This frees up banks and mortgage companies to make more loans.
The current administration, however, feels that this government guarantee is not appropriate. They say removing government support would protect American taxypayers from having to pay out millions, even billions of dollars if these loans sour–just like they did during our recent Real Estate Apocalypse (my scientific term.) During that time, the government spent $187.5 billion bailing out Fannie and Freddie.
Now that things have gotten better, Fannie and Freddie are profitable again. The bonds have sent the government $250 billion in dividends. So, in the end, the government actually made money on home loans.
However, the Trump administration would like to end the program. “I don’t remember seeing the 30-year, fixed rate mortgage and the right to own a home in the U.S. Constitution,” said Anthony Sanders of George Mason University, who believes the government should be out of the mortgage guaranteeing bid-ness.
What will happen if the 30-year, fixed rate mortgage disappears? Interest rates, which are already edging up, probably will go up even more.
Here’s how an increase in interest rates would affect you:
The higher the interest rate, the lower the purchase price you can afford.
Here’s the bottom line: Every one-half percent increase in interest rates decreases your purchasing power by four to five percent.
For the record, before the Great Depression, most Americans had short-term mortgages with a balloon payment at the end of the loan. This isn’t a bad thing…if your house actually goes up in value.
If you are thinking about buying a home and want a 30-year, fixed rate mortgage, maybe now is the time to get after it before it’s not a option. And I know someone who would love to help you! Me!
((hugs)) BETH Ellyn
THE Las Vegas Real Estate Concierge
State Managing Broker, Nevada
702.758.4318 Talk. Text. SMS. Video chat
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MBA: L’ecole du Hard Knocks
Licensed in Nevada since 1996: I have previous.
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