Understanding Jumbo Mortgages

A jumbo mortgage is a home loan that exceeds the limits set by Fannie Mae and Freddie Mac.

How are jumbo loans different?

A jumbo mortgage is determined by the loan amount. Currently, 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 largest  secondary mortgage lenders, Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac set industry standards for “conforming loans”. Home loans beyond those maximums are regarded as jumbo mortgages. These two agencies cap the dollar figure for loans that they will buy. That is where the $417,000 figure comes from. Larger loan amounts are funded by investors, such as banks, and insurance companies. The dollar figure set to qualify as a jumbo mortgage differs by locale. The limit is higher in Hawaii, Alaska and certain other states. Generally a jumbo mortgage is $417,000.

Jumbo mortgages are available for different terms. They have fifteen year fixed, thirty year fixed or a thirty year variable.

Jumbo Mortgage

The terms for jumbo mortgages vary not unlike conventional home loans. Borrowers can choose between variable rates like 3/1 or 5/1 ARM’s, 15-30 year jumbo’s or a 15 or 30 year fixed jumbo mortgage rate. The type of loan that you choose will be determined by your specific circumstances.

A thirty year fixed jumbo mortgage should be used if the borrower plans to own the home for an extended period of time. The rate is fixed and will not go up or down over the life of the loan. One advantage of this loan is that the payment is the same throughout the entire life of the loan. One drawback is that the fixed rate is generally higher than other loan options.

The lowest jumbo mortgage is usually an adjustable thirty year rate. 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 thirty year jumbo mortgage rate will be fixed for three to five years. The interest rate will usually adjust annually according to a pre-specified index.

An adjustable thirty year jumbo mortgage rate works well when a buyer plans to move within a three to five year period. This option affords the borrower with lower initial monthly payments. Most buyers will consider this option better than the 30 year fixed jumbo mortgage. There is no need to pay the higher rate if you only plan on being the property for a short period of time.

If you are planning on purchasing a home, then consulting with a qualified and trustworthy mortgage lender may be a buyer’s best resource for determining which loan type is right for them.

 

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