Jumbo mortgages are mortgages with adjustable interest rates. As the name suggests, these loans have very high interest rates. Jumbo mortgages are used by people with bad credit, military records, and for property bought through a trust. In the United States, a typical jumbo mortgage is an adjustable rate loan that can have high interest quality, but is well beyond traditional conforming loan guidelines.
Because of the high interest rate associated with jumbo mortgages, they tend to be a large debt compared to most other types of home loans. Most lenders will require borrowers to have a good credit rating and sufficient income to qualify for a regular home loan. They also want some sort of collateral or “equity interest” in order to receive a high interest rate. This equity can be in the form of a down payment, which means that the borrowers are risking their home in exchange for the loan. The higher interest rates can be somewhat negotiable, especially since many times the interest only portion of the loan is tax-deductible, depending on how many years it is agreed upon.
In addition, many lenders require homeowners to have a certain amount of equity along with their home as collateral. This equity requirement can make the jumbo mortgages a tempting option for borrowers who do not have a lot of options. But since the lender is taking on more risk than a regular home loan, lenders often want to make up for it with larger down payments and higher interest rates. While the borrower’s credit score and income may allow them access to competitive rates, there are also many restrictions on these types of loans.
People who own expensive homes that are considered non-conforming loans should consider home refinancing to combine their current jumbo mortgages. Home refinancing can be a complicated process but it can be less expensive than getting rid of their existing financing. The added benefit of combining the loans is that they are typically easier to refinance than just looking at each individual one. Lenders are usually willing to work with people who plan to stay in their homes, as the risk of foreclosure is lessened. Even people who are considering selling their homes should consider getting one or two lower interest loans so they do not get one of the most expensive loans available.
There are advantages and disadvantages to both types of loans. People who own expensive nonconforming properties that cannot be refinanced to fit in with traditional standards for financing might consider getting one of the higher interest loans to consolidate the debt. This will help them pay off their debts faster, while paying less interest overall. On the other hand, borrowers with expensive properties that cannot qualify for regular Jumbo mortgages might want to consider trying to get one of the lower interest rates that are available on jumbo terms.
Finding a lender who offers both traditional and jumbo mortgages is the first step toward financing a home. Most traditional lenders do not offer these types of loans, although there are some who might be willing to make an exception for the large mortgage sizes. Lenders who do provide this kind of option tend to have strict requirements for credit scores, so borrowers might have to have a high enough score to qualify. Once the borrower has found a lender who is willing to offer this type of financing, the borrower must shop around to find the best interest rate and terms.
A second option for financing a home involves combining both types of loan. One lender may limit the amount of interest that can be paid over the life of the loan while another limits how much the loan can be increased. Another option is that a borrower could have a cap on the number of percent that a Jumbo mortgage lender can increase the principal balance of the loan. Borrowers can use these limits to pay off their debts faster if they are able to pay more per month. While a traditional Jumbo loan may offer higher interest rates, there are ways for people to obtain the best possible terms on these loans.
