Blog

QRM: The Potential Cost to a Purchaser


The Quality Residential Mortgage (QRM), a proposal by the government to tighten lending standards, has initiated quite a debate. The government feels strongly that standards must be raised while others have debated that the new guidelines are an example of the pendulum swinging back much too far.

For the government's position on QRM, click here. For the other side of the debate, click here.

We do not want to enter this debate today. Instead, we just want to shed some light on the increased cost a buyer should expect under the new guidelines. The fact that it will cost a purchaser more is not argued by either side. The only question is the extent of the increase.

The most complete study we could find on this issue was JP Morgan's 55 page report on Securitized Products. According to their research, in order to entice lending institutions to replace government lending, mortgage interest rates could increase 3%.

"...in this new world of higher capital requirements, mortgage rates would need to rise by more than 300 basis points (3%) from current levels..."

That's assuming the banks would be looking for the same returns they normally receive. The report went on to say that perhaps the banks would be satisfied with a smaller return.

"This is not to say that the new capital requirements will necessarily drive interest rates 3% higher...the mortgage rate impact could be anywhere from 1% to 3% higher."

Let's assume the eventual increase in mortgage rate is 2% (the middle of that 1% - 3% window). What impact would that have on a purchaser?

Today, interest rates are approximately 4.5%. A two percent increase would bring them to 6.5% which happens to be about where they were prior to government intervention. On a $200,000 mortgage, a buyer's monthly mortgage payment (principle and interest) would go from $1,013.37/month to $1,264.14/month.

That is an additional $3,009 each year and a total of $90,277 over 30 years.

Bottom Line

It doesn't matter which side of the QRM debate you are on. If you are considering the purchase of a home, waiting could be expensive if lending costs do increase.

Share

About The KCM Crew

We at The KCM Crew believe every family should feel confident when buying & selling a home. KCM helps real estate professionals reach these families & enables the agent to simply & effectively explain a complex housing market. Take a 14-Day Free Trial of our monthly membership to see how we can help you!

70 Responses to “QRM: The Potential Cost to a Purchaser”

  1. Stephen Foster June 13, 2011 at 2:16 pm # Reply

    I have been telling people they need to get off the fence. Then an article appears on home prices on I think it’s the Huffington Post, title “Back to the Future” and how prices are now down to even below 2000 prices…
    Now, I don’t know how Case Shiller is doing it’s averages but here in Birmingham, that is not the case and I am from the SF bay area Atherton and San Francisco and Prices are down but NOT that down !! Or there would run away buying !! Any comments?

    • Steve Harney June 13, 2011 at 2:20 pm # Reply

      Buyers should be concerned about the COST of a home, not the PRICE. Check out tomorrow’s blog for more on this.

  2. jojo June 13, 2011 at 3:31 pm # Reply

    Steve Harney June 13, 2011 at 2:20 pm

    ” Buyers should be concerned about the COST of a home, not the PRICE. Check out tomorrow’s blog for more on this.”

    False – Price is what got everyone into underwater housing situations because they bought at the peak. Granted, prices are now deflated but saying they should not be concerned about price is madness. What happens when you want to sell and the house has depreciated 10% and the realtors want a 6% cut on top of that? Then what? Is that not a cost?

  3. jojo June 15, 2011 at 1:08 pm # Reply

    Why did my original comment get deleted but the realtor trying to convince people to buy buy buy! gets to keep his post on? Oh ya..this is a realtor blog…bye bye. Good luck having a successful site with truly one-sided information.

    • Steve Harney June 15, 2011 at 3:03 pm # Reply

      @jojo,
      Sorry. Not sure what happened. It wasn’t because of what you said. There are hundreds of comments throughout the blog that disagree with us and take us to task.

  4. Young and homeless July 6, 2011 at 11:53 pm # Reply

    To the responsible buyer in a strong financial position, how would this cost more?? If interest rates do in face go up by 3% for those that never saved then home prices should discounted according. So for the savers and hard working folks this is a definite plus. Even if home prices don’t plummet, the savers will have a much broader choice of homes to choose from due to others not being in the same financial position.

Trackbacks/Pingbacks

  1. QRM: The Potential Cost to a Purchaser « Bruce Murphy - June 13, 2011

    […] QRM: The Potential Cost to a Purchaser. […]

  2. Is it Time to Buy? | Marin County Real Estate - June 16, 2011

    […] The cost of a loan will increase […]

  3. Why They Are Saying to Buy A Home Now | Richard Barrow Utah Mortgage Professional - June 22, 2011

    […] The cost of a loan will increase […]

  4. Why they are saying, “buy a home now”! — Roy Hernandez Blog/Website - June 23, 2011

    […] The cost of a loan will increase […]

  5. Top 5 Real Estate Headlines in the 1st Half of 2011 - July 5, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will tell.Despite Early Headlines, Sales are IncreasingHeadlines earlier in the year […]

  6. Top 5 Real Estate Headlines in the 1st Half of 2011 | Lourdrie "Lou" McNamee - July 5, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  7. Top 5 Real Estate Headlines in the 1st Half of 2011 | My Kinda Town Realty - July 5, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  8. 2011 Real Estate in the News Recap :: Sarah Jullion Real Estate - July 5, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  9. Top 5 Real Estate Headlines in the 1st Half of 2011 « southwesternrealestate - July 5, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  10. Top 5 Real Estate Headlines in the 1st Half of 2011 | MSC Resources - July 5, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  11. Top 5 Real Estate Headlines in the 1st Half of 2011 - July 5, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  12. Top 5 Real Estate Headlines in the 1st Half of 2011 | Gananda Located in Walworth, NY 14568 - July 5, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  13. Top 5 Real Estate Headlines | Mortgage and Real Estate News - July 5, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  14. Top 5 Real Estate Headlines in the 1st Half of 2011 « - July 5, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  15. Top 5 Real Estate Headlines in the 1st Half of 2011 | Sharon Gunther Homes - July 5, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  16. Top 5 Real Estate Headlines in the 1st Half of 2011 | Richard Barrow Utah Mortgage Professional - July 5, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  17. Top 5 Real Estate Headlines in the 1st Half of 2011 « Purcellville VA Homes For Sale - July 5, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  18. 5 Real Estate Headlines You’ll See in the Next Six Months - July 6, 2011

    […] investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate.In many higher priced markets, rolling back Conforming Loan Limits means that rates for the […]

  19. 5 Real Estate Headlines You’ll See in the Next Six Months | Gananda Located in Walworth, NY 14568 - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  20. Top 5 Real Estate Headlines in the 1st Half of 2011 « DavidREveals - July 6, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  21. 5 Real Estate Headlines You’ll See in the Next Six Months « southwesternrealestate - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  22. 5 Real Estate Headlines You’ll See in the Next Six Months | Richard Barrow Utah Mortgage Professional - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  23. Top 5 Real Estate Headlines in the 1st Half of 2011 | Route 2 Massachusetts Homes - July 6, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  24. 5 Real Estate Headlines You’ll See in the Next Six Months! | Amanda J Wilson - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  25. (Boise did you catch?)Top 5 Real Estate Headlines in the 1st Half of 2011 | Boise's Real Estate Blog! - July 6, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  26. 5 Real Estate Headlines You’ll See in the Next Six Months « - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  27. 5 Real Estate Headlines You’ll See in the Next Six Months | Mortgage and Real Estate News - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  28. 5 Real Estate Headlines You’ll See in the Next Six Months | Sharon Gunther Homes - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  29. 5 Real Estate Headlines You’ll See in the Next Six Months » ANDREW REID GROUP - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  30. 5 Real Estate Headlines You’ll See in the Next Six Months | THE LOAN CONSULTANT - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  31. 5 Real Estate Headlines You’ll See in the Next Six Months | The Lombardo Group - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  32. 5 Real Estate Headlines You’ll See in the Next Six Months – DANIEL WALSH - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  33. 5 Real Estate Headlines You’ll See in the Next Six Months | Linh Nguyen - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  34. 5 Real Estate Headlines You’ll See in the Next Six Months | John Nichols - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  35. 5 Real Estate Headlines You’ll See in the Next Six Months | Jarrod Leitch - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  36. 5 Real Estate Headlines You’ll See in the Next Six Months » Alisha Carr - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  37. 5 Real Estate Headlines You’ll See in the Next Six Months | Unique as a Signature - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  38. 5 Real Estate Headlines You’ll See in the Next Six Months | Cristie Stapp - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  39. Daniel J. Billett » 5 Real Estate Headlines You’ll See in the Next Six Months - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  40. 5 Real Estate Headlines You’ll See in the Next Six Months - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  41. 5 Real Estate Headlines You’ll See in the Next Six Months | All Things East Cobb - July 6, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  42. 5 Real Estate Headlines You’ll See in the Next Six Months | Route 2 Massachusetts Homes - July 7, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  43. Top 5 Real Estate Headlines in the 1st Half of 2011 | KerbyandCristina - July 7, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  44. Alabama Mortgage Company » Blog Archive » 5 Real Estate Headlines You’ll See in the Next Six Months - July 7, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  45. My Real Estate Prediction! | marthashaunnessy - July 7, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  46. Top 5 Real Estate Headlines in First Half of 2011 - July 8, 2011

    […] of the mortgage market? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  47. Michael Babbitt : Why They Are Saying Buy a Home Now! - July 8, 2011

    […] 2.       The cost of a loan will increase […]

  48. 5 Real Estate Headlines You’ll See in the Next Six Months « Headlines, Stories and Commentary regarding Mortgage Meltdown and Recovery - July 11, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  49. Lynn the Home Loan Lady » 5 Real Estate Headlines You’ll See in the Next Six Months - July 13, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  50. 5 Real Estate Headlines You’ll See in the Next Six Months | Looking Up at Tacoma - July 13, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  51. 5 Real Estate Headlines You’ll See in the Next Six Months | Looking Up at Tacoma - July 13, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  52. 5 Real Estate Headlines You’ll See in the Next Six Months | The Floreno Team - July 13, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  53. Velinda Peyton Real Estate - July 14, 2011

    […] The cost of a loan will increase […]

  54. Top 5 Real Estate Headlines in the 1st Half of 2011 - July 15, 2011

    […] What will come of this? Will private industry step up and fill the void created? What will be the increased cost to the consumer? Only time will […]

  55. Upcoming headlines for the Real Estate Market | Rachel Kendall Blog - July 18, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  56. 5 Real Estate Headlines You’ll See in the next 6 Months | Madison's Real Estate Blog - July 20, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  57. Five Real Estate Headlines You’ll Likely See in the Next 6 Months | Armor Realty Blog - July 21, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  58. Bobbie's Blog » Blog Archive » 5 Real Estate Headlines You’ll See in the Next Six Months - July 27, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  59. 5 Real Estate Headlines You’ll See in the Next Six Months « Mike Walker's Blog - August 3, 2011

    […] 1. As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  60. 5 Real Estate Headlines You’ll See in the Next Six Months « MyPropertyValue - August 3, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  61. 5 Real Estate Headlines You’ll See in the Next Six Months | Josh Brinson - Charleston Creative Real Estate - August 23, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  62. 5 Real Estate Headlines You’ll See in the Next Six Months | North Attleborough & Attleborough Real Estate - October 14, 2011

    […] As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate. […]

  63. Time to Buy? - March 10, 2012

    […] The cost of a loan will increase […]

  64. Four Crucial Reasons You Don’t Want To Wait To Buy A Home « JohnnyBrooks - July 29, 2012

    […] investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate.In many higher priced markets, rolling back Conforming Loan Limits means that rates for the […]

Leave a Reply