Homebuyers and homeowners looking to refinance might want to pay attention: The time-tested formula governing your mortgage interest rates just took a dramatic turn. Commissioner Gonzales, of the Tennessee Department of Financial Institutions, has announced that the new maximum effective interest rate for home loans for October 2024 will be capped at 8.15 percent per annum. This change arrives on the back of the Federal National Mortgage Association's decision to halt its free market auction system for commitments to purchase conventional home mortgages.

In a move that could send ripples through the housing market, the interest rate is four percentage points higher than the market yields on long-term government bonds adjusted to a thirty-year maturity, according to data from the U.S. Department of Treasury—sitting at just 4.15 percent. Homeowners locked into rates prior to this announcement may find themselves on the wrong side of history, as the new rates set by the 1987 Public Chapter 291 move into effect.

For those sitting with a calculator trying to puzzle out what this means for their mortgage, or their plans to buy a home, might benefit from seeking legal advice. The interplay between the maximum effective interest rate and the Depository Institutions Deregulation and Monetary Control Act of 1980, along with subsequent regulations by the Federal Home Loan Bank Board, can be complex. There's potential for state usury laws to be preempted by this federal legislation, particularly concerning loans made after March 31, 1980.

According to a notice by the Tennessee Department of Financial Institutions, "Persons affected by the maximum effective rate of interest for home loans as set forth in this notice should consult legal counsel as to the effect." These aren't just words to the wise. Considering the patchwork quilt of financial regulations and the potential for rate-induced sticker shock, getting ahead of these changes seems not just prudent, but necessary.