The rise in housing prices across the nation has ushered a growth in the number of jumbo mortgage refinance applicants. Whether purchasing a mansion in Palm Beach or a country cottage in Tennessee, many Americans are choosing to finance with a jumbo mortgage; an option no longer reserved to upper-end luxury residences.
What is a jumbo mortgage? A jumbo loan is a loan exceeding the maximum eligibility or conforming dollar limit for purchase by Freddie Mac and Fannie Mae, the two largest secondary market lenders that buy the bulk of residential mortgages in the United States. The value is adjusted each year based on average home prices.
What is jumbo mortgage refinance?It is the process of obtaining a mortgage that is larger than the federal guidelines. Due to the closing costs, jumbo mortgage refinance can be more expensive than refinancing a traditional loan.
Although a jumbo mortgage is similar to a traditional loan program, there are differences between the two forms of mortgage financing. First, jumbo mortgage refinance requires a slightly higher down payment. No money down programs are usually not available; a minimum of 5% down payment is necessary. Secondly, small interest rate variations in a jumbo mortgage affect the monthly payment to a greater extent than in a conventional loan. The risk of an interest rate increase can result in a large dollar amount increase. Due to the size of the loan, jumbo mortgage lenders often offer variable loan programs to borrowers. Some of the typical loan programs available through jumbo mortgage companies include:
10, 15, 20, or 30 Year Fixed Rate Jumbo Mortgage Refinancing 40- or 50-year amortization (allowing the jumbo loan borrower to repay the loan over a longer period of time) 80/20 & 80/15 Jumbo Loan programs An interest only option (making it possible for borrowers to defray any repayment of principal for a few years – thus allowing them to save on their monthly payments) Stated Income Jumbo Mortgage Refinancing Adjustable Rate Jumbo Mortgages of 1/1, 3/1, 5/1 and 7/1 ARM products No Documentation Jumbo Mortgage Refinancing
Consumers resort to jumbo mortgage refinance for one of several reasons:1. Lower the total mortgage cost by reducing the term: Borrowers might choose jumbo mortgage refinance in order to save a substantial sum on total interest over the term of the mortgage.2. Lower the interest rate to decrease the monthly mortgage payment: Obtaining a jumbo mortgage refinance when mortgage rates are low allows homeowners to lower their monthly payments.3. Convert an adjustable rate mortgage (ARM) to a fixed rate mortgage: A borrower who anticipates that his ARM is going to increase can switch to a jumbo mortgage to lock in at a fixed rate. 4. Debt consolidation: A jumbo mortgage refinance enables consumers to tackle other higher-interest debt, such as installment loans or credit balances and consolidate them into a lower-rate home loan.5. Take out a larger loan and obtain a “cash out”: With a jumbo mortgage refinance, borrowers can obtain a “cash out” mortgage or a larger mortgage that allows them to use the extra cash for other expenditures such as home renovations or a college education.
Finally, before homeowners embroil themselves in a financial commitment such as a jumbo mortgage refinance, they should 1) carefully consider their options, 2) explore the upside and downside of each, and 3) determine which one of the programs is the most attractive prospect or best corresponds to their situation and needs.