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A 14% Home Mortgage Rate?

We have written on the long term impact that the new mortgage guidelines known as ‘Qualified Residential Mortgage’ (QRM) will have on the cost of financing a home. However, it seems that these expenses are already beginning to creep into lending. The QRM guidelines are much more rigid than those used in the last year. Though the new guidelines (if accepted as proposed) will not be mandated until some future date, it seems many lending institutions have already begun to put in place some of these more stringent qualifications.

The Result?

A new cottage industry of ‘hard money’ lenders has appeared to fill the void created by the more onerous guidelines. The Wall Street Journal reported:

“Dallas attorney Joey Messina has a side business some might find surprising: He uses his own money to make mortgage loans to people who banks likely would avoid.

In the past two years, Mr. Messina has funded 20 mortgages, ranging in size from $40,000 to $102,000. The mortgages carry interest rates of 14%—more than double the rates charged by most banks…”

And there are many more lenders like Mr. Messina popping up all across the country.

Why Would Someone Pay 14% Today for a Mortgage?

As banks continue to tighten their lending requirements, more and more buyers will be forced into more expensive loan options if they want to purchase a home. The WSJ explains:

“For borrowers who have been turned away by banks, hard-money can provide a chance to take advantage of opportunities in the market. Ever since mortgage defaults surged after the housing crash, banks have been reluctant to lend to certain types of borrowers, including investors.”

Bottom Line

Not everyone will pay 10-14%. However, many feel rates could be 1% to 2% over current rates for many borrowers.

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