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Specifics about Jumbo Mortgage Loans

April 6, 2010

Although the name may imply something rare and unusual, a jumbo mortgage only has a few items separate from a conventional mortgage. The main difference lies in the amount of the loan. The upper limit set by Fannie Mae and Freddie Mac for a standard mortgage is $417,000 in the majority of states. A higher loan amount is considered to be a jumbo mortgage. Although Fannie Mae and Freddie Mac usually buy a large number of mortgage loans, they typically stay away from the jumbos. These types of loans are in turn handled by banks and sometimes by insurance companies. Because these loans carry more risk, the rates on the loan are higher than a standard mortgage.

In other words, because the loan amount for jumbos are so much bigger, this means there is a potential to lose more money in the case the borrower cannot make the payments. Since a 1% change in rate can mean a difference of over $300 per month in payments on a 30-year $500,000 loan, it would be wise for borrowers to do their homework and find the financial institution offering the lowest mortgage rate.

Borrowers should seek out a financial institution with a strong track record in handling jumbo mortgage loans to ensure that they find a good rate. Besides the higher interest rates, borrowers have other items to think about when comparing jumbo mortgage lenders. The fees and closing costs that are specific to the jumbo mortgages could make up for the higher rates associated with the loans. There are times when the company with the highest jumbo rate turns out to have cheapest deal if their fees and costs are significantly lower than their competition.

A person considering a jumbo mortgage should take into account their long term plans and review all available options. Just as the case with standard mortgage loans, a jumbo mortgage can be structured in multiple ways. It is possible to finance the loan with a fixed rate for the first 3 or 5 years of the loan and then the rate adjusts yearly afterwards. Or the loan can be financed on a 15 year or 30 year term with a fixed interest rate for the entire loan term.

Choosing between the fixed rate and the adjustable rate loan depends on depends on your plans for the home. If you plan to stay in the home for longer than the adjustable period you may wish to seek out a good fixed rate loan. But if you anticipate moving or being able to pay the loan off within the fixed period, choosing the 3-year or 5-year adjustable loan could save you money.

The higher jumbo mortgage rate should not frighten off potential borrowers. For persons with strong qualifications a jumbo rate is usually only a quarter of a percentage point higher than standard mortgage rates. Due to the housing markets in many areas across the country, jumbo mortgages are the norm for many buyers. Taking the time to shop around for a qualified and experienced jumbo mortgage lender can pay off handsomely. Mortgage lenders with a fantastic history in handling these types of loans will be able to guide you to selecting the appropriate loan for you needs.

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