VA Raises Top Mortgage Rate Half-Point to 10%

The Veterans Administration said Friday it is raising its maximum interest rate for federally backed VA home mortgages to 10%, the second increase in less than a month.

The increase from the current 9.5% maximum will take effect on Monday.

The VA said graduated payment mortgages also would rise a half-point, to 10.25%, and home improvement loans would go from 11% to 11.5%.

“Current conditions in the financial marketplace made the increase necessary to ensure that funds would continue to be available to veterans seeking to buy or refinance homes,” the VA said.

“What they’ve done is caught up with what’s been happening with interest rates for the past couple of weeks in the market,” said Bob O’Toole, a vice president of the Mortgage Bankers Assn. Had the rate remained at 9.5%, he said, VA financing would soon become unavailable.

“Even the new rate of 10% is good for home buyers and should not have much of a dampening effect,” he said.

The VA change reflects a sudden surge upward in interest rates in recent weeks. On April 13, the agency raised its maximum rate from 8.5% to 9.5%, the first increase in two years.

The Federal Home Loan Mortgage Corp. said Friday that the average rate for 80%, 30-year conventional mortgages was 10.52% this week, up from 10.47% last week.

In the last three years, the VA has lowered its maximum rates 15 times, most recently on Jan. 16. VA mortgage rates peaked at 17.5% in September, 1981.