RTC Mortgage Blog

Tax Cut = Higher Mortgage Rates

January 7th, 2012 7:31 PM by Richard T. Cirelli

Tax Cut Extension = Higher Mortgage Rates

We all recall the battle that took place in Congress recently to extend the tax cut to working Americans in order to help the economy. But, did you know that nearly everyone financing a home over the next 10 years will pay the bill for the two-month temporary extension that Congress approved and the President signed into law?


Technically, Congress increased the "Guaranty Fees" that Fannie Mae and Freddie Mac charge to lenders that securitize Mortgage-Backed Securities (MBS's) with these agencies. Ultimately, this cost must either be absorbed by lenders, passed on to consumers, or some combination of the two. And I'll bet it won't be the lenders that volunteer to pay the price. Therefore, the borrowers will pay for it.


The 10 basis point increase in the Guaranty Fee or "G-Fee" as it's called, equates to a pricing difference of 30-40 basis points in terms of cost/rebate or roughly 0.125% in rate. 

Does it seem right that a 2-month temporary cut in the income tax rate should be paid by everyone financing a home for the next ten years? I welcome your comments.

Posted in:General
Posted by Richard T. Cirelli on January 7th, 2012 7:31 PM



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