Fixed Rate Jumbo Mortgages make a Comeback

Fixed Rate Jumbo Mortgages make a Comeback

Source: The Wall Street Journal
Just a year ago, 30-year, fixed-rate jumbo mortgages were hard to find in some high-price markets. Now,
many lenders are offering fixed jumbos – with very competitive rates.
Making sense of the story
 A jumbo mortgage is a home loan with an amount that exceeds conforming loan limits imposed
by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy mortgages
from lenders. The conforming loan limit is $417,000 in most parts of the United States, but is
$625,500 in the highest-cost areas, which includes California.
 During the mortgage crisis, the vast majority of jumbos were adjustable-rate mortgages and
hybrid adjustable-rate mortgages, which started at low fixed rates and switched to adjustable
interest rates at the end of a set time period – typically of five, seven, or 10 years.
 With the renewal of the secondary market for jumbo mortgages, more lenders today are willing to
offer fixed-rates. Packaging the loans into mortgage-backed securities that are sold to investors
can lessen the risk to lenders.
 While interest rates for jumbo mortgages are significantly lower than a year ago, hybrid ARMs
remain attractive to borrowers with other financial priorities.
 The general wisdom when deciding between an ARM and a fixed jumbo is the same as with any
mortgage. Borrowers should consider the length of time they plan to live in the house. If the
length of time is near or less than the length of the ARM, then borrowers will save money with
the ARM.
 Still, borrowers should keep in mind that some lenders will push hybrid ARMs because the lender
stands to reap a higher return on investment. Additionally, lower ARM interest rates and monthly
payments can free up cash to purchase stocks and other assets.
Read the full story


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