The U.S. Congress on Thursday voted to extend higher loan limits for government-backed mortgages, a move that should help keep borrowing costs low and support the shaky housing sector.

At the height of the financial crisis in 2008, the government raised the ceiling on the size of loans Fannie Mae and Freddie Mac could buy. At the time, the private market for so-called jumbo loans had all but dried up.

The legislation approved by the House of Representatives and Senate, which President Barack Obama is expected to sign into law, would keep in place until October 2011 the higher $729,750 ceiling for single-family home mortgages in high cost areas other than Hawaii and Alaska.

The cap was scheduled to shrink to $625,500 at the start of 2011. The move to extend the higher limit will effectively keep interest rates super-low for a large swath of home buyers.

Analysts had warned that the housing market could have taken a fresh hit had Congress let the limits reset.

The loan limits measure, which was inserted into a larger government funding bill, also includes an extension of the caps for loans backed by the Federal Housing Administration.

Fannie Mae, Freddie Mac and the FHA are the main government support pillars for the battered housing market.

New mortgage originations directly or indirectly backed by the government represented about 82 percent of the market in the three months through June, the most recent figures available, according to industry publication Inside Mortgage Finance.

Without an extension of the higher loan limits, many borrowers would have a harder time refinancing homes and obtaining financing for new home purchases.

Fannie Mae and Freddie Mac help ensure mortgage credit is flowing by buying mortgages to free up lenders to make new loans.

(Editing by Eric Walsh)

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