LoanCentral's Real Estate Lending Blog

Congress recently voted to extend an existing payroll tax cut into the first two months of 2012, before they were set to expire on December 31, 2011. The tax cut temporarily reduces the social security tax rate from 6.2% down to 4.2%. This cut saves approximately 160 million workers on average $83 per month in their paychecks or... $20 per week.

However, as with any tax cut there has to be an offsetting increase in revenue to make up for it… especially when the tax cut depletes our already crippled social security fund.

The payroll tax extension is said to cost approximately $33 billion over 10 years and will be paid for by increasing the fees charged to mortgage lenders by Government Sponsored Entities Fannie Mae, Freddie

Mac & FHA. The effect of this will be higher interest rates for the very same low and middle income families that are said to be helped by the tax cut.

The increase in fees is set to hit the markets within the next 30 - 45 days, and will result in an increase to mortgage rates of approximately .1%. For the homeowner with a $300,000 loan, this works out to an additional cost of approximately $6,200 over the life of a 30 year loan.

Using social security as a funding source for borrowing money for government stimulus is not a very responsible practice. It can be likened to encouraging people to pull money from their 401k accounts to go spend today.

Allowing the government the ability to increase mortgage rates as a means of covering their spending is also reckless…particularly in an economy with a crippled housing market.

Lenders will be adding this fee into their rate sheets within the next 30 days. Now is the time to lock into an interest rate to take advantage of today’s lower rates!