Understanding Jumbo Mortgages

Jumbo Mortgages, also known as non-conforming, are mortgages with a loan amount that is above conventional loan limits.

How is the amount of a jumbo load determined?

The difference between jumbo and other types of mortgage loans is the loan amount. At present, loan amounts that are higher than $417,000 are generally considered jumbo mortgages. This determination is made by comparing industry standards for average housing loans as governed 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.

Best Terms - 30 Year Fixed Jumbo Mortgage Rate, 15 Year, or Variable 30 Year Jumbo Mortgage

Terms for jumbo mortgages vary much the same as other housing loans. Buyers can choose between variable rates, such as 5/1 or 3/1 Adjustable Rate Mortgages (ARM), 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 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 - a 30 year fixed jumbo mortgage stays the same throughout 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 since lenders know they can never charge more than the original rate.

The lowest jumbo mortgage rate is usually an adjustable 30 year jumbo mortgage rate. Lenders know they have the potential of benefiting from interest rate increases over time, so are willing to lend at a smaller margin in the beginning. However the lower rate won't last forever. 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.

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 a buyer more concerned with smaller initial payments, or who will likely refinance in the near future, the variable 30 year jumbo mortgage rate is better than the 30 year fixed jumbo mortgage. Why pay the higher fixed rate when it doesn’t fit in with the buyer's long-term plans?

Jumbo mortgage products - 15 year, variable 30 year, or the 30 year fixed jumbo mortgage - have their benefits. A dependable mortgage lender with experience financing jumbo mortgages is a buyer's greatest resource for advice on which product is appropriate for them.