Jumbo mortgages — loans that exceed the limit for the so-called conforming loans sold to Fannie Mae and Freddie Mac — have been making headlines recently, with some media outlets pointing out that more-affluent borrowers are finding it easier to get larger mortgages.
In the greater scheme of things, jumbo loans don’t account for a very big part of the market, but they might be the right answer for you if you are interested in buying a home that costs much more than you can borrow with a conforming mortgage loan (currently $417,000, except for high-cost areas around major cities where the limit is $625,500). Interest rates for these loans are very competitive and in some cases lower than rates for conforming loans.
In today’s market, mortgage lenders are happy to tell you about their jumbo loans for a number of reasons:
First of all, it’s not that often that consumers will see interest rates on jumbo loans lower than rates for conforming loans. Typically, lenders charge more for these loans, as the higher balances mean investors are taking on more risk. Today’s lower rates give loan officers all the reason they need to call on former borrowers and business partners.
Why are rates lower now? Part of the reason is that most lenders are starting to get desperate for loan volume. Interest rates have been low long enough that it’s getting hard to find homeowners who can still benefit from refinancing their loans. In October, the Mortgage Bankers Association reduced its estimate for the industry’s 2013 loan volume a second time, estimating total originations for the year at $1.7 trillion. That’s down from more than $2 trillion in 2012.
With lending guidelines tough and likely to get tougher now that the Consumer Financial Protection Bureau’s new ability to repay rule has kicked in, many lenders are hoping to attract one of the few consumer groups that can still qualify for a loan — the wealthy. Of course, once the wealthy home buyer becomes a bank customer, the bank can cross-sell its other products in the hope of deepening the relationship and earning more “share of wallet.”
This is great news if you’re earning a better-than-average income, have some assets and are looking for a loan that is too big to be sold to Fannie Mae and Freddie Mac. But remember, the lowest rates are always offered on adjustable-rate mortgages — loans with interest rates that are tied to an index and can float up or down. If you’re only going to be in the home for a short time, a very low interest rate ARM may serve your needs. If you’re going to be there longer, take care you don’t get caught in a loan with an increasing interest rate that you may find more difficult to refinance out of in the future.
For more information, visit with your loan officer or bank executive.
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Rick Grant has been covering financial services for the trade press for more than 15 years. He specializes in home finance and technology.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.