The Non-Conforming Jumbo Mortgage
What Exactly Is a Jumbo Mortgage?


A jumbo mortgage, as its name suggests, is simply a home loan that is larger than what traditional loan standards allow. These are loans that go beyond the limits set by publicly chartered corporations Freddie Mac and Fannie Mae on lenders. For instance, if you want to purchase a residential property that has more than a $300,000 price tag, you might want to consider getting a jumbo (or larger) mortgage.

However, before you decide to get a jumbo mortage, also called a non-conforming loan (for obvious reasons), you must first educate yourself with the risks involved. A jumbo mortgage, because of the size of the amount borrowed, comes with bigger interest rates. Such rates usually go at around 0.5 per cent to 1 per cent higher than traditional and lower-valued loans. The rates for jumbo mortgages also depend on the amount being loaned. For instance, a 30-year loan worth between $15,000 and $399,000 could have a 5.375 per cent interest rate attached to it; whereas a mortgage that is worth about $600,000 may have an interest rate of 5.75 per cent or more.

Aside from the higher interest rates, the lenders of jumbo mortgages may also require a bigger downpayment from the borrower. This is a technique lenders use to ensure that the borrower handles the amount responsibly, because part of his own money is invested into the property. This also reduces the risk of losing money.

What are the benefits of taking on a jumbo mortgage?

First, you can borrow a larger amount. Again, most lenders place a cap on the amount a person can borrow. A Jumbo mortgage can allow you to purchase a more expensive home. Second, a jumbo mortgage is available under fixed-rate or adjustable-rate loan programs. Talk to your lender about your options. Third, you get a wider variety of purchasing choices. You can get either a new first home, a vacation house or any other property you might want to use as an investment.

Who are the best candidates for jumbo mortages?

A jumbo mortgage is best for people who can afford to pay larger monthly payments. If you think you cant keep up with the higher interest rates, this is not for you. But if youre confident of you financial status and itch for a brand-new home or higher-value property, then, by all means, go for it.

A jumbo mortgage might seem like an ideal step to getting that luxurious piece of property youve been eyeing for years. Keep in mind, though, that you must first evaluate your financial capabilities before you plunge into it. If you fail to keep up with the payments, it is likely that you will lose your present home. Therefore, ask the help of a professional before deciding to do anything. Mortgage experts will be more than willing to help you assess your finances and determine which types of loans are suited for you. Exercise maximum prudence. A jumbo mortgage, while attractive and seemingly easy, is no joke.