What Is A “Jumbo” Mortgage?
A “jumbo” mortgage is a loan that larger than the current conforming guidelines established by Fannie Mae or Freddie Mac. Today, a mortgage that exceeds $424,100 is considered “non-conforming.”
So, when you finance expensive property, you need a jumbo mortgage. Interestingly, the borrower has to play by different rules, because mortgages for high-priced homes are not necessarily standardized.
Jumbo Mortgages: They Are Back
During the mortgage crisis a number of years ago, jumbo loans all but vanished. The ones that remained came with guidelines that were nearly impossible for homeowners to meet.
Jumbo loans generally meant high down payments, higher interest rates, and high credit standards – which made these loans essentially obsolete.
But as the real estate market steadily recovered, jumbo loans have been re-entering the lending landscape.
In fact, homebuyers in the market for a larger loan may be pleasantly surprised to know that jumbo mortgage rates are nearly as low as conforming rates.
Conforming Rates vs. Jumbo Mortgage Rates
Years ago, the difference between conforming mortgage rates and jumbo rates ranged between half a point to two full points.
These days, however, the spread between jumbo rates and conforming rates is minimal – sometimes as little as 1/10th of a percent, according to a number of surveys out in the marketplace.
Look At Jumbo ARMs
Adjustable rate mortgages can be over one percent lower than fixed-rate jumbo loans. For borrowers with larger loans, ARMs are popular alternatives.
That’s because with bigger balances, the effect of a lower interest rate on what you pay each month is more pronounced.
In addition, jumbo ARM rates can sometimes be lower than their conforming counterparts.
Many jumbo ARMS are not sold to investors, but are instead held by lenders on their own books. These “portfolio” mortgages can be made according to whatever guidelines and pricing the lenders establish.
The market is much less homogeneous, and the smart shopper can often find a bargain with a lender trying to expand its market share or build up its pipeline.
Jumbo ARMs come with introductory periods in which their rates are fixed. You can find loans fixed for three, five, seven, or ten years.
If you don’t keep your mortgage for more than the introductory period, you’ll never even have to deal with rate adjustments. And interestingly, most borrowers don’t hold on to those mortgages for more than 7 years.
Compare and Shop Jumbo Mortgage Rates
Unlike conforming mortgage rates, which typically differ by .25 to .5 percent between competitors, jumbo mortgage rates can vary largely from one lender to the next.
Jumbo lenders can serve different markets — alternative documentation, non-prime, unorthodox properties, or borrowers with big down payments and perfect credit — and that affects the rates charged.
This means that when conforming mortgage rates are higher, jumbo rates don’t necessarily follow that the same path.
It definitely pays to shop and compare.
Unlike smaller mortgage loans, a half percent difference in the interest rate on a $700,000 loan amount can add up over time.
- $700,000 at 4.375% = $3,495
- $700,000 at 4.875% = $3,704
The difference between these two scenarios adds up fast. Over five years, $209 per month saves over $12,500.
Let’s Talk
If you are interested, please do reach out to talk in further detail about jumbo mortgage products. It would be my pleasure to help!
The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc.
