Jumbo Mortgage
In the United States, a jumbo mortgage loan is defined as a mortgage that is larger than the maximum amount specified by the industry leaders. At present this figure is around $420,000 and any loan amount above this is classified as a jumbo mortgage. Not surprisingly the increase in house prices over the last few years has meant that the purchase of most normal family homes may now require jumbo mortgages and they are no longer reserved for luxury dwellings and holiday homes.
The most popular type of loan in this category is the 30 year jumbo mortgage. Saying that, a lot of people are now turning to 40 and even 50 year terms, simply because they need their monthly repayments to remain affordable should the interest rates increase.
Until recently a jumbo loan mortgage required a 20 percent deposit however the increasing house prices has meant that this is out of the reach of most young and first time buyers. As a result, some lenders now offer variable and fixed jumbo mortgage packages that require a minimum deposit of just 5 percent. A few even offer ‘no money down’ packages however these tend to come with slightly higher interest rates that can’t be fixed.
Jumbo mortgages are undoubtedly a high risk option for lenders and as such the jumbo mortgage rates are invariably slightly higher than those of mortgages conforming to the industry maximums mentioned above. The risk comes from the fact that many more people with a jumbo mortgage, and even a refinance jumbo mortgage, default on their payments. Ongoing non-payment then results in repossession and the selling of the house, but with high value properties this can take a while to achieve.
It is important to remember as well that most 30 year jumbo mortgage rates are variable and monthly payments can increase by hundreds of dollars in a matter of weeks. This is something a lot of people tend to overlook when applying for jumbo mortgages.
Jumbo mortgages are a great option for anyone looking to buy a home that exceeds the $420,000 asking price that most mortgage lenders are willing to agree in today’s fluctuating economic climate. This type of mortgage can run for anything between 30 and 50 years and some packages can now be secured with just a 5% deposit.
The only real drawback therefore is in the jumbo mortgage rate of interest which is slightly higher than the industry average and almost always variable; a factor that can cause untold problems in the future for those that aren’t prepared.