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Conforming loan limits will be higher in 2006. 

Conforming mortgages are so named because they "conform" to rules of the government agencies that buy mortgage loans from mortgage lenders.  Those agencies are named Fannie Mae and Freddie Mac.  The limits exist to help Fannie and Freddie limit their overall exposure to the housing market and better securitize loans for investors.

The 2006 conforming loan limits will differ by property type and reflect the nation's increasing home values. In 2006, the new limits will be:

• 1-Unit: $417,000
• 2-Unit: $533,850
• 3-Unit: $645,300
• 4-Unit: $801,950

Mortgage loans for more than the conforming loan limits are relegated to "jumbo loan" status.  All things equal, jumbo loans are more expensive than conforming loans because they are not guaranteed by Fannie or Freddie.

In 2005, the 1-Unit conforming loan limit was $359,600.  Therefore, any homeowner whose mortgage balance is between $359,600 and $417,000 can convert an existing jumbo loan to a conforming loan and possibly save money each month.

In addition, homeowners with sub-prime mortgages in the $400,000 range may also benefit from switching into a conforming mortgage product with a lower rate. 

As recently as this summer, sub-prime rates for 30-year fixed mortgages were lower than the equivalent jumbo 30-year fixed mortgage, but higher than the conforming rate.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.