| If you're in the market for a luxury home and | | | | the high risk perception the sellers of these loans need |
| expecting to have a mortgage loan over $417,000 | | | | to do something to compensate investors for the |
| then be prepared for a surprise. A loan that large will | | | | increased risk in buying jumbo mortgages. That |
| put you into jumbo mortgage territory and along with | | | | "something" comes in the form of higher interest rates |
| that comes higher interest rates. | | | | for jumbo mortgage loans. As is the case with any |
| In case you don't know what a jumbo loan is, basically | | | | investment a higher risk translates to higher return on |
| it is any mortgage loan over $417,000. Why $417,000 | | | | investment. It's simple Finance 101. Of course the one |
| you might ask? It's because this is where Freddie Mac | | | | that suffers is the jumbo loan borrower. |
| and Frannie Mae have set the cutoff point for | | | | Besides being perceived as high risk loans, the jumbo |
| conforming loans and it means that they will not buy | | | | loans have a limited number of investors interested in |
| any loans greater than this amount. That's a big deal in | | | | them. Mortgage resellers need to do something to |
| the secondary mortgage market since these two | | | | sweeten the deal and entice these investors to buy |
| lenders own over 50% of all home mortgages in the | | | | more jumbo loans. The easiest way to do this is |
| United States. | | | | through increased yield. This is just one other reason |
| Investors view jumbo loans as higher risk than smaller | | | | that interest rates are higher for jumbo mortgages. |
| more common mortgages and price them accordingly. | | | | So, how much will all of this actually influence your |
| The thing is that most jumbo mortgages are taken by | | | | jumbo mortgage rates? Usually there is a difference |
| borrowers who typically have a very strong | | | | of anywhere from ¼ to ½ point or |
| background. They have stable jobs, a high credit score, | | | | 0.25-0.50% in the interest rate for a jumbo mortgage. |
| high incomes, high net worth and money in the bank. | | | | This may seem like a small amount, but can translate |
| These are people that are not very likely to default on | | | | to $80-160 a month on a 30 year jumbo mortgage for |
| their home loans. | | | | $500,000. Unfortunately this is just the way it is and if |
| No matter that the loans should be considered safe, it | | | | you want a jumbo loan you'll have to live with the |
| is the perception that they are high risk that drives up | | | | jumbo mortgage rates. |
| the interest rates on jumbo mortgages. Because of | | | | |