Understanding Jumbo Mortgages
In simple terms, a jumbo Mortgage is a loan for real estate that exceeds loan standards for average priced homes.
How are jumbo loans different?
The difference between jumbo and other types of mortgage loans is the loan amount. Today, loans greater than $417,000 are generally considered 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 loan amounts are funded by other investors such as banks and insurance companies. 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 in some other states). In the majority 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
Similar to other housing loan types, the terms for jumbo loans vary. 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 rate.
Whether a 15 or 30 year fixed jumbo mortgage or an adjustable rate is best for you will depend on your plans and 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 downside, the 30 year fixed jumbo mortgage rate is higher since lenders know they can never charge more than the original rate.
An Adjustable 30 year jumbo mortgage rate is usually the lowest. Lenders understand their potential to benefit from increases in rates over time, so they are willing to lend at a lower rate 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. Which means small increases and decreases result in monthly mortgage payment changes.
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 buyers that are interested in smaller initial payments, or who will probably refinance early on, the variable 30 year jumbo mortgage rate is better than the 30 year fixed jumbo mortgage. Why pay the higher 30 year fixed jumbo mortgage rate when the buyer knows this isn’t their long-term plan?
Jumbo mortgage products - 15 year, variable 30 year, or the 30 year fixed jumbo mortgage - have their benefits. A dependable mortgage lender with experience financing jumbo mortgages is a buyer's greatest resource for advice on which product is appropriate for them.
About the Author
This article is written by J.B. of 1st American Mortgage and Loan, LLC, a Colorado mortgage lender who offers access to information on obtaining a Colorado mortgage loan as well as other information on loans inColorado online mortgage quotes, and rates through his website TrueMortgageQuote.com http://www.truemortgagequote.com).
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