by Jakai Spikes
Wed, March 19th 2025 at 9:50 PM
Rear view of woman looking looking at real estate sign. Getty Images.
CHATTANOOGA, Tenn. — A controversial bill making its way through the Tennessee Senate could shake up how home loan interest rates are set, creating more roadblocks for buyers.
The bill would create a new system where rates would be set at 4% above the state average, potentially pushing them well past current levels.
Right now, the interest rate for home loans is 7.5%, determined by auction or bond yields. If the bill passes, rates could surge as high as 11.5%.
Language in the bill explicitly includes home loans, raising concerns among lawmakers and real estate professionals.
But Senator Ken Yager, bill sponsor, insists this will not impact traditional home loans.
“This bill will replace the index that’s currently used to calculate the current interest rates. This bill will be applied to mortgage bankers, secondary loans… This bill would make things more modern and will result in competitive rates for consumers.”
Supporters say this bill aims to simplify the process of buying a home, by making loans more accessible.
“More people will be able to get mortgages, the second mortgages most likely because the banks can charge a higher rate than they currently can.”
UTC Economist Howard Wall says the only people who would be affected by the bill are the people who are currently unable to get a second mortgage.
“You hope that the bank’s controls and the usual controls that you have for whether someone gets a mortgage are in place, but again, almost nobody is going to actually be getting a loan at these rates,” Wall says.
But some first time home buyers says these rates are something they could never afford.
Realtor Tony Britton is advising consumers to go ahead and act now on purchasing a mortgage before interest rates rise.
“You can have a $1,200 mortgage, and when the interest rate doubles, your monthly payment becomes like $2,400. So just think about how psychologically, money wise, budget wise, how they can bust your budget.”
Britton says he sympathizes with those who may be worried about the outcome of their future.
“For first time home buyers, that can be another obstacle in terms of affordability. We don’t want to see that.”
Wall says this bill ultimately changes how interest rates influence the market.
“The current law pegs the maximum interest rate to the average of two interest rates from the federal government. One of those two interest rates is going away, so they can’t calculate the average the same way. So they’re saying, okay, let’s calculate it this way instead.”