A new federal rule is set to shake up the mortgage industry, making home loans more expensive for individuals with good credit, while benefiting those with lower credit scores. Borrowers with high credit will effectively be subsidizing those with lower scores, in order to help support affordable housing initiatives.
This change likely comes as a surprise to many who have worked hard to maintain good credit history, as they may now be penalized with higher mortgage costs. Traditionally, individuals with higher credit scores have enjoyed lower mortgage rates and more favorable loan terms.
Good Credit, Bad Break
The federal rule will specifically impact homebuyers with a credit score of 680 or higher, who will potentially have to pay about $40 more per month than those with lower credit when taking out a mortgage of $400,000.
This will have a significant impact on both high and low-credit consumers. Those with higher scores will experience an increase to their monthly mortgage costs, which may cause some to reconsider their plans for homeownership. Meanwhile, those with lower scores will benefit from reduced mortgage costs, potentially opening up the opportunity to purchase a home.
The change is set to take effect quickly, with a start date just around the corner — May 1st.
This action aims to reduce the wealth gap and make homeownership more accessible to those with lower credit scores. But it may not sit well with those who have worked diligently to maintain good credit scores.
For some, this new rule may cause financial strain. For others, it could provide a much-needed break. Regardless of one’s credit score, it’s important to weigh the costs and benefits of homeownership in light of these new developments. Sometimes, evidently, even beneficial things can cost you.
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