Jumbo Mortgages

How are jumbo loans different?

What differentiates jumbo mortgage loans is the loan amount. At present, loan amounts that are higher than $417,000 are usually deemed jumbo mortgages. Fannie Mae and Freddie Mac set industry standards for 'conforming loans'; Home loans beyond those maximums are regarded as jumbo mortgages. 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 mortgagerate. Whether a 15 or 30 year fixed jumbo mortgage or an adjustable rate is best for you will depend on your plans and situation.

On the downside, 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. 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 30 year jumbo mortgage rate is better than the 30 year fixed jumbo mortgage. Why pay the higher fixed rate when the buyer knows this isn’t their long-term plan? All jumbo mortgage products - 15 year, variable 30 year, or the 30 year fixed jumbo mortgage - have their benefits. A trustworthy mortgage lender with experience financing jumbo mortgages is a buyer's best resource for determining which product is right for them.

Mortgage Security

A new study suggests the security of a five-year mortgage costs little or nothing beyond a riskier variable-rate mortgage, providing you get a jumbo-sized rate discount. "Interest costs on discounted closed five-year mortgages have been close to, and often lower than, those of variable-rate mortgages since late 1996," senior Canada Mortgage and Housing Corp. economist Ali Manouchehri writes in the study.

Homeowners have made variable-rate mortgages hugely popular in the past few years in the belief that you can save on interest costs by pegging your mortgage rate to your lender’s prime lending rate. The prime rate at the major banks is now 4.5 per cent, while the posted five-year rate at the big banks is 6.15 per cent. In just one year, the variable-rate choice would save you about $1,700 on monthly payments toward a $150,000 mortgage amortized over 25 years (assuming a level prime rate).

For that reason, the CMHC's Mr. Manouchehri decided to compare discounted five-year mortgages with discounted variable-rate mortgages. Incidentally, five years is the most popular term by far for fixed-rate mortgages at about 59 per cent of the total.

For five-year mortgages, he used a discount of 1.25 of a percentage point; for variable-rate mortgages, it was 0.4 of a point off prime. For five-year mortgages taken out between 1993 and mid-1996, the five-year mortgage was costlier in terms of interest costs. Since then, however, variable-rate mortgages have generally been a little bit more expensive. Obviously, there's nothing in this study that decides the fixed-rate versus variable-rate debate once and for all.

You were a spectator to these rate declines if you were stuck in a five-year mortgage, while people in variable-rate mortgages would have benefited almost immediately.
Five-year mortgage rates are close to a 50-year low, which suggests they're far more likely to rise over their term than fall.

So what's the best choice here, variable-rate or five-year fixed rate? People who want to pay rock-bottom mortgage rates for as long as possible will probably still want a variable-rate mortgage. First, the CMHC study tells us there may not be a significant cost to locking your mortgage in for five years, and you might even save a little over a variable-rate mortgage. Arguably, the variable-rate versus fixed-rate debate is all about risks and rewards.

Jumbo Mortgage Loans

A jumbo mortgage loan is a loan taken for property that is high-priced. In Colorado, as in most of the U.S., a jumbo mortgage loan is any mortgage that exceeds $417,000 - the limit set by Fannie Mae and Freddie Mac for conforming loans.
Rates for a jumbo mortgage are also higher than conforming loans because there is more risk involved.

What This Means for Jumbo Mortgage Interest

The size of a jumbo mortgage loan means there is more to lose. The size, coupled with other factors, results in somewhat higher jumbo mortgage rates than those carried by conforming loans. Since percentage points on jumbo mortgage rages can mean sizable payment differences, buyers should shop around for a good lender when applying for a jumbo mortgage loan in order to find the best rate. In truth, jumbo mortgage interest rates are only one thing to consider when shopping for a jumbo mortgage. Like conforming mortgages, jumbo mortgages are offered in a variety product lines. Buyers have the option of taking out loans with adjustable jumbo mortgage rates with 3 or 5 year locked rates that adjust after that period, or 15 or 30 year fixed jumbo mortgage rates that never change.
Buyers should not be scared off from higher jumbo mortgage rates; jumbo mortgage rates are higher only by a quarter of a point or so for well qualified buyers. As a matter of fact, jumbo mortgage loans are the only type available in many areas.

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