Jumbo Mortgage
A Jumbo Mortgage is a mortgage with a loan amount above conventional loan limits. Jumbo Mortgages apply when agency (FNMA and FHLMC) limits don’t cover the full loan amount. Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of residential mortgages in the U.S. They set a limit on the maximum dollar value of any mortgage which they will purchase from an individual lender. Currently, the 2006 limit is $417,000; $625,500 in Alaska, Hawaii and the U.S. Virgin Islands. This leaves a portion of the market to look elsewhere for placement. Other large investors, such as insurance companies and banks, step in to fill the need with maximum mortgage amounts going to the $1 million or $2 million range. The average interest rates are typically greater than normal for conforming mortgages and vary depending on property types and mortgage amount.
Fixed Rate Jumbo Mortgage is a type of jumbo mortgage with a fixed rate. The characteristics of a jumbo fixed rate mortgage are the same as a conventional mortgage. Depending on the loan amount however, certain loan-to-value restrictions may apply. Consult a qualified loan officer for details.
Adjustable Rate Jumbo Mortgages are those with adjustable rates. The features of a jumbo adjustable rate mortgage (ARM) also depend on the loan amount.
Balloon Jumbo Mortgages are another option for a borrower. The guidelines for this type of jumbo mortgage vary depending on lender/broker.
There are some higher risks connected with Jumbo Mortgages, mostly for lenders. This is because if a Jumbo mortgage loan defaults, it is harder to sell a luxury residence fast for full price. Luxury prices are more vulnerable to market highs and lows. That is one reason lenders prefer to have a higher down payment from Jumbo loan seekers. The interest rate charged on Jumbo Mortgage loans is generally higher than a loan that is conforming due to the slightly higher risk to the lender. IT can vary but is generally .25 to .5 % higher. If you need current jumbo interest rates, you can check www.bankrate.com
Jumbo Mortgage loan options are similar to traditional loan programs. They simply require a slightly higher down payment, of usually an additional 5% for similar program types. No money down programs are generally available, but instead require a minimum of 5% down payment for a jumbo mortgage. Because the loans are large, jumbo lenders frequently offer variable loan programs to the jumbo client. The risk of an interest rate increase can result in a large dollar amount increase. Generally adjustable rate mortgages are popular due to the low payment. It is expensive to refinance a jumbo loan due to the closing costs. Some lenders will offer the service of an extension and consolidation agreement, so that the person who refinances jumbo will not have to pay for mortgage tax again on the same principal balance. In other cases title insurance companies will offer up to a 50% discount often required by law for those refinancing within 1 year to 10 years. The largest discount is for within one year.
There are some recent trends to know. Due to Increased Housing Prices there is a large increase in the number of Jumbo loan applicants. Many consumers are becoming jumbo borrower when simply buying a modest ranch and not the typical luxury residence we often think of when a jumbo loan is needed. New loan programs are now offered to address the large increase in Jumbo Loan applications. Because of the steep housing value increases during the recent years (2000- 2006) mortgage loans are required in excess of the conforming limits in most big city areas or their suburbs. The new loans are either a 40 or even 50 year amortization, or an interest only option. They allow the jumbo loan borrower to pay the loan back over a longer period of time, or to defray any repayment of principal for a few years - thus saving them on their monthly payment. In some cases the banker makes a larger profit if the loan takes more than 30 years to repay.