Understanding Jumbo Mortgages Article

Mar 11

Understanding Jumbo Mortgages

Jumbo Mortgages, also known as non-conforming, are mortgages with a loan amount that is above conventional loan limits.


How is the amount of a jumbo load determined?


What distinguishes jumbo mortgages is the loan amount. Today, loans greater than $417,000 are usually deemed jumbo mortgages. This classification is determined based on industry standards for average home loans as defined 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 limit is higher in Hawaii and Alaska (and a few others). In the rest of the U.S., jumbo mortgages are those larger than $417K.


Best Terms - 30 Year Fixed Jumbo Mortgage Rate, 15 Year, or Variable 30 Year Jumbo Mortgage


Terms for jumbo mortgages vary much the same as other 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 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 better for those whole plan to own the home for a very 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. Conversely, the 30 year fixed jumbo mortgage rate is higher since lenders know they can never charge more than the original rate.


The lowest jumbo mortgage rate is usually an adjustable 30 year jumbo mortgage rate. 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 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 advantages. A dependable mortgage lender with experience financing jumbo mortgages is a buyer's greatest resource for advice on which product is appropriate for them.



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 in Colorado, online mortgage quotes, and rates through his website TrueMortgageQuote.com