The Less you Make the More you Pay

When it comes to mortgage rates anyway…

Have you heard of the jumbo loan? A jumbo loan is a mortgage with the loan amount exceeding the conforming loan limits set by the office of Federal housing enterprise oversight. Because of the size of loans, jumbo loans are not eligible to be purchased, guaranteed, or secured by Fannie Mae or Freddie Mac. Jumbo loans are often secured by institutions other than the typical Fannie Mae or Freddie Mac companies. Typically, these securities carry more credit risk and usually trade at a yield premium which translates into higher interest rates that within recent years the spread in interest rates between jumbo and conventional mortgages has been reduced. [Source]

According to Money.CNN.com  richer home buyers can now get mortgages cheaper than just about anyone else. Why is this the case? The government ran agencies require conforming loans to be below $417,000 unless they are for homes in high cost. Like New York or LA where the limit is $625,500. Because a jumbo loan would exceed the dollar limits banks have charged higher interest rates on them in the past; about .25% points more. But over the last couple of months the tables and actually turned. This week, Wells Fargo advertised a 30 year jumbo mortgage at 4.125% which is lower than the 4.5% rate it has been offering for a typical conforming loan. US Bank offered a jumbo loan for 3.875% compared with the 4.25% for a conforming and Chase’s jumbo loans have been running about a quarter percent below conventional loans.  [Source]

So what’s the reasoning behind the low interest rates? Banks probably want to attract wealthy clients especially after dealing with short sales, default buyers and delinquent homeowners over the last 5 to 7 years. Banks prefer to have people that actually pay off their mortgages and would probably rather reward to those that do so even though they’re loaning more money.

According to Keith Gumbinger who is a mortgage expert with  HSH.com, with rates as low as they are borrowers may never refinance the loans so those affluent clients in staying on the banks books forever.

Fannie Mae and Freddie Mac loans have recently raised fees and other costs for borrowers that with jumbo mortgages, considering they are not backed by these financial institutions, those fees don’t apply and are not passed on to the borrower. For the Estero real estate area  this makes a great financial sense and for those looking to purchase a home over $417,000, which there are plenty of in this area, they’ll need options such as jumbo loans and mortgages from various financial institutions to complete the transaction. [Source] – Talk to a Florida mortgage broker about your options.