The government said Friday that it is raising the maximum interest rate on federally backed Veterans Administration mortgages to 13% from 12.5%.
The VA said the increase, the first since last May, will take effect Monday. The new 13% rate will apply to single-family home mortgages guaranteed by the VA.
The agency said it also will raise rates Monday on graduated-payment loans from 12.75% to 13.25% and on home improvement loans from 14% to 14.5%.
VA Administrator Harry N. Walters said the hike in the mortgage-rate ceiling was made necessary by rising interest rates.
Warren Lasko, executive director of the Mortgage Bankers Assn., welcomed the increase and said that it should expand the number of homes that can be purchased with VA loans, since sellers will be more willing to accept VA financing.
"The rate adjustment reflects the upward drift in market interest rates in recent weeks, and it will help assure a continuing flow of credit to the VA home-loan market," Lasko said.
The VA last raised its ceiling on mortgage rates May 29, when the rate went to 14% from 13.5%. The rate subsequently was reduced three times, dropping to 12.5% last Nov. 21.