Conforming loan limits set to go down

As if getting a mortgage loan isn't tough enough, come January 1 the conforming loan limits are going to go down which will cause some loan payments on new mortgages and refinances to go up.

Ever since Congress passed the stimulus bill earlier this year Southern Californians have been enjoying higher conforming loan limits on their mortgages. That has meant lower interest rates and lower payments, but that's about to change come January 1.

Instead of the old limit of $729,750 consumers will see a new limit of only $625,500 for 2009.

"The difference between between being over that threshold or under that threshold is more than a full percentage point indifference in mortgage rate," said Greg McBride, Bankrate.com.

McBride says consumers should try to lock in their interest rate, close their mortgage or re-finance before the end of the year because that one percentage point in interest can make a huge difference in your loan payment.

For example, let's say your mortgage is $650,000. At the old loan limit your interest rate would be around 5.25 percent on a 30-year fixed. Your payment would be $3,589.

With the new limit your interest rate could jump up to 6.25 percent and your payment could climb to $4,002. A difference of over $400 a month.

One suggestion is to put down a larger down payment.

"You might also want to consider taking a small second mortgage. That way you are not having to pay a much higher rate on the entire loan balance. If you took a small second your first mortgage would be at the lower preferred rate," said McBride.

There is some talk among mortgage experts that because the new loan limit of $625,500 will become permanent on January 1, any loan under that new limit will receive the benefits of a conforming loan.

In other words, it would mean lower interest rates for those who are looking to buy or refinance after the first of the year, as long as you have good credit and a reasonable down payment.

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