Obama’s extension of the 2011’s payroll tax cut should come as welcome relief to the millions of working and unemployed Americans struggling through these difficult times. The $143 billion measure passed with overwhelming bipartisan support in congress earlier this month. The payroll tax cut extension continues the 2 percent reduction in the tax that funds Social Security, cutting it from 6.2 to 4.2 percent for employees. Other provisions in the payroll tax cut include maintaining the current level of reimbursement for doctors treating Medicare patients and extending jobless benefits to the unemployed.
What does this mean in the real world? A worker earning $50,000 a year, for example, will take home an extra $80 a month – higher paid employees could save as much as $2,200 a year from the 2 percent deduction. Benefits for the long-term unemployed average about $300 a week and should last, depending on the State, anywhere from 63 to 73 weeks.
All told, the 2 percent reduction in the Social Security payroll tax deducted from workers’ paychecks is going to cost the Federal government $93 billion through 2022. Additionally, the cost of extending jobless benefits for 63-73 weeks comes out to $30 billion, half of which will be paid by auctioning off portions of the communications spectrum to wireless companies and the other half by increasing federal workers pension contributions from 0.8 percent to 2.3 percent.
A big bone of contention among some homebuyers is a measure that was snuck in to the payroll tax cut bill allowing HUD (Department of Housing and Urban Development) to increase insurance premiums on FHA (Federal Housing Administration) backed loans. This measure will permanently increases the fee government-backed mortgage giants, Fannie Mae and Freddie Mac, charge to insure home mortgages by one-tenth of a percentage point, or 0.1%.
Basically what this translates to is a $17 monthly house payment increase for a $200,000 mortgage from Freddie or Fannie. Keep in mind that this increase will only affect people who want to refinance or apply for new loans from Freddie Mac or Fannie Mae from Jan. 1 2012 onwards.
Any rumors of increasing mortgage rates to pay for the 2012 payroll tax cuts extensions are greatly exaggerated. Here are the facts:
– The hike only affects FHA backed loans (i.e. Freddie Mac or Fannie Mae).
– Only new FHA loans that have been applied for from Jan. 1 2012 onwards are affected.
– The increase in insurance premiums for FHA loans will go up by 0.1% – which will be an average increase of $17 a month for a typical Fannie or Freddie mortgage holder.
If you are worried about these new FHA insurance hikes affecting your mortgage or are looking to refinance your home loan for better a better rate, do not hesitate to contact me or Carlos at Team Aguilar today!