Jumbo Mortgage Loans
Risk of Jumbo Loans - Rates, Non Conforming Loans
Consumers will be looking at jumbo mortgage loan rates, if they are buying residential properties with purchase prices in excess of $333,700. These loans exceed loan size regulations of government agencies and are therefore known as “jumbo” loans. As you can imagine, lending anybody such large amounts of money comes with a risk, and companies offering these loans reflect the high level of risk in their interest charges.
When considering a large mortgage loan, it is important to consider the other fees and charges that will be incorporated into the monthly payment.
Interest rates for jumbo loans tend to be around 0.5 percent to 1 percent higher than on loans with a lower value. For example, the interest rate for a loan with a term of 30 years and an amount between $15,000 and $399,999 could be around 5.375 percent. However, a loan in excess of $600,000 may have an interest rate in excess of 5.75 percent.
As well as slightly higher rates of interest, underwriting requirements may also differ. The company offering the loan may, for instance, ask for a higher down payment. The down payment is a part of the purchase price of the property and therefore reduces the amount that you need to borrow. Large down payments are usually required on jumbo mortgages as the lenders can reduce their risk if a customer’s own money is invested into the property.
Jumbo loans are also known as non-conforming loans. These loans do not conform to the guidelines set out by Fannie Mae and Freddie Mac. These private companies resell mortgages, bought from lenders, on the secondary mortgage market. If a loan exceeds limits set by Freddie Mac and Fannie Mae, the loan does not follow the rules and is therefore deemed to be “non-conforming.”
As with any mortgage borrowing, it is important that you evaluate your financial status before taking on such a huge debt. If you fail to keep up with the monthly repayments you will be at risk of losing your home. And it is therefore important to discuss any financial requirements with a professional. Mortgage brokers will not only help you to evaluate your finances, but will also be able to help you find the most appropriate mortgage for the purchase of your new home.