In simple terms, a jumbo Mortgage is a loan for real estate that exceeds loan standards for average priced homes.
How are jumbo loans different?
What differentiates jumbo mortgage loans is the loan amount. Today, loans greater than $417,000 are usually deemed jumbo mortgages. This classification is determined based on industry standards for average home loans as defined 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 exceeding those limits are considered 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 loans are funded by a variety of other investors, like insurance companies and banks. Note that the dollar figure set to qualify jumbo mortgages differs by locale, so the limit is higher in Hawaii and Alaska (and a few others). In most of the United States, jumbo mortgages are those larger than $417K.
Available Terms - 15 Year Fixed, 30 Year Fixed, or Variable 30 Year Jumbo Mortgage
Similar to other housing loan types, the terms for jumbo loans vary. Buyers can choose between variable rates, for example 3/1 or 5/1 ARMs (Adjustable Rate Mortgage), for a 15-30 year jumbo mortgage, or a 15 or 30 year fixed jumbo mortgage.
Whether a 15 or 30 year fixed jumbo mortgage or an adjustable rate is best for you depends on your future plans and current situation.
A 30 year fixed jumbo mortgage is better for those whole plan to own the home for a very long time. With this type of mortgage, the rate will not go up but it will never go down, either - it remains at the same rate for the duration of the loan. This is good because the payment is predictable, and cannot rise sharply if interest rates do. On the other hand, the 30 year fixed jumbo mortgage rate is higher since lenders know they can never charge more than the original rate.
An Adjustable 30 year jumbo mortgage rate is usually the lowest. Lenders know they have the potential of benefiting from interest rate increases 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. Which means small increases and decreases result in monthly mortgage payment changes.
An adjustable 30 year jumbo mortgage rate is a good idea when a buyer plans to move within the 3 to 5 year fixed period. For buyers that are interested in smaller initial payments, or who will probably refinance early on, the variable rate is more advantageous than the 30 year fixed jumbo mortgage. Why pay the higher 30 year fixed jumbo mortgage rate when it doesn’t fit in with the buyer's long-term plans?
All jumbo mortgage products - 15 year, variable 30 year, or the 30 year fixed jumbo mortgage - can be beneficial. An honorable mortgage lender with experience financing jumbo mortgages is a buyer's best source of advice on which product to choose.
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