A jumbo mortgage rate is one which is assigned to a jumbo mortgage, oftentimes used when purchasing higher priced homes that require larger loans than normal.
Unfortunately, a jumbo mortgage interest rate is slightly higher though they’re exceptionally convenient. And since the actual dollar amount that signifies the need for a jumbo mortgage is redefined every year, it on thing that is subject to change. Given, cost of living and inflation goes up year after year – the number representing a jumbo mortgage does as well.
Jumbo Mortgage Rates: Bigger isn’t always better
As of the time of this writing, the current jumbo mortgage rate is $417,000. Above that, you’ll have to factor in a higher jumbo mortgage rate. That quite a bit higher than it has been in years past.
Really, the change was necessary because housing prices in the U.S. had risen dramatically over the last few years. Now, it’s not terribly unusual for a house to cost more than $400K in some parts of the country. Some of these houses aren’t thought of as luxurious either, for that matter.
Now, it might not seem at all fair that mortgages about a specified dollar amount be subject to higher interest rates. After all, if you qualify for the loan shouldn’t you just get a normal mortgage rate?
Both Fannie Mae and Freddie Mac buy up most of the U.S. residential mortgages from banks and lenders, and then resell them to professional investors. They’re packaged up and traded in a market similar to Wall Street. The problem is jumbo loans aren’t as easy as conventional loans to resell. What happens is lenders then charge more interest through jumbo mortgage rates on these mortgages to help make them more profitable.
Avoiding A Jumbo Mortgage Rate
Jumbo loans carry higher rates. Normally, a jumbo mortgage rate is a quarter of a percent higher than conventional consumer loans. People who are borrowing an amount close to the jumbo mortgage limit will usually try to figure out a way to avoid the higher rate.
Some mortgage companies let you take out two loans to avoid a jumbo fixed rate mortgage. The first loan will cover the bulk of the loan. The second mortgage will provide the remaining funds.
Usually, the interest rate on the second, small loan will be slighly higher but it’s usually possible to pay it off quickly so they can find a low refinance rate for the main mortgage. Of course, it’s smarter to have a small loan with a higher interest rate than a big loan with jumbo mortgage rates attached! Having a big mortgage that entirely falls under jumbo mortgage status could add up to tens of thousands of dollars in the long run.
Additionally, people sometimes put a larger down payment on the house or pull money out of their retirement or 401K to avoid a higher jumbo mortgage rate. Not that the latter options are preferable but sometimes it does happen.
