Advantages and Disadvantages of Jumbo Mortgage Rates
If you’re in the market for a new home, you might be hearing about jumbo mortgage rates. But what are they? And why should you even care? After all, a 30-year fixed rate mortgage comes with adjustable interest rates that can jump as high as 3%. So why would you consider a jumbo mortgage?
The first steps you’ll take to qualify for a jumbo mortgage are very similar to those you’d go through for other kinds of loans. You’ll have to go through an identity check, verification of your employment, and get the property assessed. But since the maximum amount you can borrow is much higher, the lending rules are going to be a lot stricter. Basically, you’re going to need a super jumbo loan to fund the big purchase you’re making.
In addition to the higher loan amount, another reason borrowers consider these mortgages is because they offer a conforming limit. The conforming limit is the maximum amount that the bank will lend. Once the loan amount has been reached, the borrowers lose their ability to increase their loan amount. This is similar to how conventional loans work. Borrowers can only increase their loan amount up to a certain point, after which they must reapply for financing or risk losing their home.
While conventional loans have reasonable loan limits, homeowners with good credit are still often required to take out additional financing. In addition, most lenders set their own loan limits based on their own loan rating. While this is not bad, some homeowners may still want to take out a larger loan to fund the big purchase. Traditional lenders usually set their own loan limits, so jumbo mortgage rates can help ensure the largest loan amount possible. However, it’s important to realize that a higher loan limit can mean more risk to the lender.
In addition to the conforming limits of traditional loans, borrowers also have to contend with secondary market competition. Just like conventional loans, many homeowners choose to go with a jumbo mortgage rates to get the best deal. Since secondary market lenders often operate in a different market, they may have lower rates or fees than the local secondary market. While this does help the local real estate market, there are often other disadvantages to going with the secondary market. Many borrowers find themselves paying higher interest rates or facing late or other fees and costs on their loans.
There’s also a lack of research for those who choose the jumbo mortgage rates. Typically, borrowers must rely on interest rate quotes from a few of the local refinance companies before making their decision. This increases the chance of missing out on better rates by other refinance companies. This is because the quotes will likely be based on the current prime interest rate, which can be different from the secondary market. Those who use the secondary market may have a harder time finding a better interest rate or may not find one at all.
Another disadvantage to choosing a jumbo mortgage rates is that borrowers do not often get the same perks that their conventionally refinanced counterparts would receive. Most conventional lenders allow borrowers to choose a standard interest rate and fixed or variable interest rates. The jumbo mortgage rates often only allow for fixed interest rates.
As with any loan, there are advantages and disadvantages to both types. If the primary decision-maker thinks the secondary market will offer better rates or services, then it’s always a good idea to take advantage of them. On the other hand, if the borrower knows that they are planning on consolidating their debt, it’s often a better idea to go with a jumbo mortgage rates even though it’s more expensive than conventionally refinanced debt. Some studies show that borrowers who opt for jumbo loans pay off an average of two percent more in interest than those who go with conventionally refinanced debt. Either way, borrowers must consider their financial situation before making a decision.