Category: Business - Business Management

Understanding Jumbo Mortgages

Author: 1st american mortgage

In simplest terms, jumbo mortgages are loans taken to buy expensive real estate that exceeds loan standards for average homes.


How are jumbo loans different?


What differentiates jumbo mortgage loans is the loan amount. At present, loan amounts that are higher than $417,000 are usually deemed jumbo mortgages. This determination is made by comparing industry standards for average housing loans as governed by the two biggest secondary mortgage lenders, Fannie Mae and Freddie Mac.


Fannie Mae and Freddie Mac set industry standards for 'conforming loans'home loans exceeding those limits are considered jumbo mortgages. These two agencies cap the dollar figure for loans that they will buy (that's where the $417,000 figure comes from). Larger loans are funded by a variety of other investors, like insurance companies and banks. Note that the dollar figure set to qualify jumbo mortgages differs by locale, so the cap is higher for jumbo mortgages in Hawaii and Alaska (and a few others). In the rest of the U.S., jumbo mortgages are those larger than $417K.


Available Terms - 15 Year Fixed, 30 Year Fixed, or Variable 30 Year Jumbo Mortgage


The terms for jumbo mortgages vary similarly to other types of housing loans. Buyers can choose between variable rates, like 3/1 or 5/1 ARMs, for a 15-30 year jumbo mortgage, or a 15 or 30 year fixed jumbo mortgage.


Whether a 15 or 30 year fixed jumbo mortgage or an adjustable rate is best for you depends on your future plans and current situation.


A 30 year fixed jumbo mortgage is preferable for people who plan to own the home a long time. With this type of mortgage, the rate will not go up but it will never go down, either - it remains at the same rate for the duration of the loan. This is good because the payment is predictable, and cannot rise sharply if interest rates do. On the other hand, the 30 year fixed jumbo mortgage rate is higher because the lender knows they can never get more than the original rate.


An Adjustable 30 year jumbo mortgage rate is usually the lowest. Lenders know they have the potential of benefiting from interest rate increases over time, so are willing to lend at a smaller margin in the beginning. Although, the lower rate won't last. A variable 30 year jumbo mortgage rate will be fixed for 3 to 5 years, and then will adjust annually according to an index. Even small increases could mean significantly larger monthly mortgage payments.


Going with an adjustable 30 year jumbo mortgage rate works well when a buyer plans to move within the 3 to 5 year fixed period. For a buyer more concerned with smaller initial payments, or who will likely refinance in the near future, the variable rate is more advantageous than the 30 year fixed jumbo mortgage. Why pay the higher fixed rate when it doesn’t fit in with the buyer's long-term plans?


All jumbo mortgage products - 15 year, variable 30 year, or the 30 year fixed jumbo mortgage - have their advantages. An honorable mortgage lender with experience financing jumbo mortgages is a buyer's best resource for determining which product is right for them.