Rates on Second Home Mortgages to Increase in 2022

Rates on Second Home Mortgages to Increase in 2022

According to the Federal Housing Finance Agency, fees on some home loans will increase starting April 1, 2022. 

The new upfront fees apply to Fannie Mae and Freddie Mac mortgages with high balances and second homes. As is the case with most fee hikes, the cost of fee hikes is passed on to borrowers at higher interest rates. 

Consumers can save some money if they plan to borrow more than the conforming loan limit or buy a vacation house.

Who will be affected by this change?

The increasing prices target those borrowers who are applying for conventional high-balance loans and those seeking second homes. 

As a point of reference, conventional mortgages account for about 64% of home loan purchases, according to the National Association of Realtors.

A high balance mortgage is one with a balance above the baseline conforming loan limit in 2022, which will be $647,200 for 95% of American households. 

Second homes are properties you will live in part-time but are not your primary residence. 

What is the reason behind the FHFA's increase in fees on a vacation home and high-balance loans?

The adjustment in fees was made to facilitate "equitable and sustainable access to homeownership" while improving Fannie Mae and Freddie Mac's "regulatory capital position," said Sandra L. Thompson, acting director of the FHFA.

Thus, the new fees will increase FHFA's cash reserves.  

It's also a way for first-time home buyers and borrowers with low incomes to get credit. First-time homebuyers in high-cost areas with incomes at or below the area median won't have to pay these fees.

Experts say the newly raised fees will allow the government-sponsored enterprises (GSEs) to lower fees in the mission-focused portions of their businesses.

Fees will increase on April 1 for both types of payments. 

What is the new conforming loan fee?

According to a tiering system based on the loan-to-value ratio, GSEs will increase upfront fees for high-balance loans.

There will be an increase in upfront fees between 1.125% and 3.875%, also tiered and dependent on the loan-to-value ratio.

To what extent the lenders absorb and pass on the new fees will be up to them.

To offset their new costs, lenders will likely raise the interest rates on these loans in this scenario. 

Nonetheless, if the lender knows it will be able to sell to Fannie or Freddie before the suggested fee comes forth and the new fees come into effect, they will not be required to price it higher. 

Apply before the cost increases
The FHFA's fee hike and projected rising interest rates for 2022 should inspire you to act quickly if you're considering taking out a loan above the baseline conforming limit or buying a second home. 

According to its press release, the FHFA chose April 1 as the start date for the fee increases to minimize market and pipeline disruptions. 

The new fees will be based on the characteristics of each loan and how long it takes from application to delivery before they take effect.

Please submit your application two months before April 1 to avoid the new fees.

There's no better time to lock in a low rate on either a high-balance loan or a mortgage for a second home.