Understanding Jumbo Mortgages

By: 1st American mortgage

A jumbo mortgage is a home loan that exceeds the limits set by Fannie Mae and Freddie Mac.

How is the amount of a jumbo load determined?

What differentiates jumbo mortgage loans is the loan amount. Currently, loan amounts 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 beyond those maximums are regarded as 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 cap is higher for jumbo mortgages in Hawaii and Alaska (and a couple other states). In most U.S. States, jumbo mortgages are those larger than $417K.

Best terms fixed rate, 15year, or variable30 year jumbo mortgage

Similar to other housing loan types, the terms for jumbo loans vary. Buyers can choose between variable rates, like 3/1 or 5/1 ARMs, 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 will depend on your plans and situation.

A 30 year fixed jumbo mortgage is preferable for people who plan to own the home a long time. With this type of mortgage, the rate will not go up but it will never go down, either - it stays the same for the life 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 because the lender knows they can never get 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. Even small increases could mean significantly larger monthly mortgage payments.

Choosing an adjustable rate is good when a buyer plans to move within the 3 to 5 year fixed period. For a buyer more concerned with smaller initial payments, or who will likely refinance in the near future, the variable rate is more advantageous than the 30 year fixed jumbo mortgage. Why pay the higher fixed rate when the buyer knows this isn’t their long-term plan?

Jumbo mortgage products - 15 year, variable 30 year, or the 30 year fixed jumbo mortgage - have their benefits. An honorable mortgage lender with experience financing jumbo mortgages is a buyer's best source of advice on which product to choose.

This article is written by J.B. of 1st American Mortgage and Loan, LLC, a Colorado mortgage companywho offers customers access to information on obtaining a mortgage loan in Denver, and other information about getting a home mortgage in Colorado through his website TrueMortgageQuote.com (http://www.truemortgagequote.com).

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This article is written by J.B. of 1st American Mortgage and Loan, LLC, a Colorado mortgage companywho offers customers access to information on obtaining a mortgage loan in Denver, and other information about getting a home mortgage in Colorado through his website TrueMortgageQuote.com (http://www.truemortgagequote.com).