Buyers may get higher mortgage rates

The weak housing market has been great news for home buyers, but some purchasers will soon see an unexpected downside: higher mortgage rates.

Soft home prices have prompted industry giants Fannie Mae and Freddie Mac to leave loan limits on so-called “conforming” mortgages unchanged for the first time since 1995.

Fannie and Freddie announced plans yesterday to keep conforming loans’ cutoff at $417,000 for 2007, unchanged from 2006. That means home buyers who borrow more than $417,000 next year will need costlier “jumbo” loans.

Generally, jumbo-mortgage interest runs about 0.25 percentage points higher than conforming-loan rates.

Borrow $417,001 at today’s jumbo rates and you’d pay $22,500 more interest over 30 years than you would if you could get the money at conforming rates.

“In years past, as the conforming-loan limit increased, borrowers had a cheaper mortgage alternative,” said Greg McBride, senior financial analyst with mortgage tracker Bank-Rate.com. “But next year, that alternative will be harder to grab a hold of.”

By law, Fannie and Freddie adjust the conforming-loan limit each November based on how much average U.S. home prices changed in the preceding 12 months.

This year, prices rose just 0.16 percent, so Fannie and Freddie left the limit unchanged for 2007.

By Jerry Kronenberg at http://business.bostonherald.com/