Tuesday, March 29, 2011

What Phasing out Fannie May and Freddie Mac Means to You Part II

Last week, we discussed what the history and the proposals submitted to congress recommending changes to Fannie and Freddie.  Part II will discuss what this means for you.

What this means for you?
Through these two firms, the 30 yr fixes loan has been made readily available.  This has been important in terms of providing stability in terms of homeowners’ monthly budgets and housing prices. 

If the private sector took over mortgages, the 30 yr fixed loan could become more expensive.  There is debate regarding how much the interest rate could increase to cover the risk, but some say as high as 3%.  This would raise a monthly payment for every $100K borrowed to increase from $537 to $733 per month (an increase of $2,352 per year).

The bottom line is there will probably not be any significant changes during the next five years to these loans.  The other good news is other countries with a higher percentage of ownership are able to offer different alternatives to the 30 year fixed mortgage. 

The U.S. has a home ownership rate of 66.5%, down from 69.2% in 2004.  Yet some countries have a higher percentage of ownership then the U.S.:
  • Ireland: 74.5%
  • Australia and the United Kingdom: 70%
  • Canada: 68.4%
  • Japan: 61%

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