Understanding Jumbo Mortgages

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. Currently, loan amounts greater 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 beyond those maximums are regarded as 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 a few others). 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

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
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 - a 30 year fixed jumbo mortgage stays the same throughout the life 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 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. Even small increases could mean significantly larger monthly mortgage payments.

Choosing an adjustable rate is good 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 benefits. An honorable mortgage lender with experience financing jumbo mortgages is a buyer's best resource for determining which product is right for them.

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This article is written by J.B. of 1st American Mortgage and Loan, LLC, a Colorado mortgage company who offers customers access to information on obtaining a mortgage loan in Denver, and other information about getting a home mortgage in Colorado through his website TrueMortgageQuote.com

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